How important is brand to e-commerce?
I don’t necessarily mean the brand of the company selling the goods online; we’ve covered that extensively here at ClickZ. No, I’m more interested this week in discussing how the concept of brand influences consumers’ buying behavior. The answer can have (and has had) a huge impact on the survival of anybody who’s trying to sell stuff on the Web.
Drivers of Online Purchasing
First let’s look at how consumers behave online. A Jupiter study on retail differentiation published last year found that the two biggest drivers of consumer behavior for e-commerce were a better price (74 percent) and the ability to compare prices (46 percent).
People want good prices, to be sure. (Though we can’t forget to add shipping to the mix: Forrester reported in January 2000 that the cost of shipping is a major part of the decision-making process for 82 percent of online shoppers.) But they also want information on products and some sort of basis for comparing products before buying. A Yankee Group study published in August 2000 confirms this, finding that 65 percent of online shoppers complained about not being able to tell the quality of the merchandise they wanted to buy. That same study also found that 80 percent of shoppers first seek information before buying.
The economic impact of being able to give people the information they want can’t be underestimated. Creative Good, in its white paper “Building a Great Customer Experience,” reports that 62 percent of shoppers have given up at least once while trying to find a product, with 42 percent actually turning back to traditional channels to buy what they needed. Not good news for anyone trying to sell online.
What Dissuades Online Buyers
The “UCLA Internet Report: Surveying the Digital Future,” a survey of 2,096 users and nonusers, sheds some light on what dissuades people from buying online. Privacy, returns, shipping charges, and the difficulty in assessing products all top the list of why people don’t buy. Though some of these are infrastructure issues, the difficulty of assessing products directly speaks to the role of brand online.
Why? Because consumers really don’t have anything else to go on. With the Web’s relatively low cost of entry (something consumers are well aware of), there’s a major perception that buying online is risky. You’ve got to go with what you can trust. Brand communicates this trust.
The Yankelovich Monitor’s 2000 report on consumer behavior underscored this issue. Its research revealed that consumers have turned away from using brand as a status symbol toward using brand as a way to compress information. If they know a brand and what it stands for, they’re able to trust (or distrust) that brand when making a buying decision.
Therefore, when it’s difficult to really gauge the look and feel of a product — as is the case on the Web, where the barriers to entry are relatively low (unlike catalogers, which have to pay for printing and shipping) — consumers will increasingly turn to brands they know when deciding whether to buy.
Cases in Point: Living.com and Eve.com
If you don’t believe this, look at two big dot-bombs from last year: Living.com and Eve.com.
Both companies were, at one time, in the upper ranks of Web traffic due to huge, expensive marketing campaigns. Both had compelling, well-designed sites. And although Living.com suffered from many of the fulfillment problems endemic to the online furniture industry, Eve.com had few such problems. Also, both of them were loaded with tens of millions of dollars in venture capital. They seemed sure things.
They weren’t. Both folded in 2000, brought down by declining sales, nonexistent profits, and heavy cash losses. Both had trouble carrying brands that consumers wanted.
Within two weeks of Living.com’s launch, most major manufacturers prevented the site from carrying their products. According to a November 2000 New York Times article, Living.com was able to carry only 20 percent of the inventory most brick-and-mortar stores were allowed to sell in their showrooms.
Eve.com even acknowledged its brand problems in its parting press release, citing “fundamental industry issues related to product supply” that would “preclude the company from achieving acceptable levels of profitable growth in cosmetics alone.”
What the company really meant was that Estie Lauder and Lanctme wouldn’t sell to it, thereby eliminating about 70-80 percent of the brands that cosmetics users want to buy. After Eve.com went belly-up, Sephora.com snatched up the defunct company. It could afford to. Backed by megabrand LVMH (Mokt Hennessey Louis Vuitton SA), Sephora.com’s been doing pretty well. Estie Lauder has since gone on to buy Eve.com’s major competitor, gloss.com, to be used as a front for Estie Lauder products.
For Eve.com and Living.com, high traffic numbers never translated to repeat customers and ensuing profits. Why? Because online nobody can try on lipstick or bounce on a couch. It’s tough to make the leap and buy something unless you already know what you’re getting.
The Physical Edge
Print catalogers already have something going for them that instills trust in customers; the very fact that their channels are physical objects seems to imply solidity and inspire trust in the company and its products.
Other catalog companies, such as L.L. Bean and Lands’ End, already have large, established customer bases to draw on — satisfied customers who are willing to refer their friends to the company, instilling trust one more time.
In the end, deciding to push that “order” button on that shopping cart is a decision based more on trust than anything else. If people don’t know you or your products, why should they trust you?
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