Much at Stake for Internet Retailers

While Internet users are rapidly becoming online shoppers, purchase failures, security fears, and service frustrations are rampant, according to a study by The Boston Consulting Group (BCG).

More than half (57 percent) of Internet users have shopped for, and 51 percent have purchased, goods or services online, according to the study, “Winning the Online Consumer: Insights into Online Consumer Behavior.” The typical online purchaser completed 10 transactions and spent $460 online over the past 12 months. Yet 28 percent of all attempted online purchases failed, and four out of five consumers who have purchased online experienced at least one failed purchase attempt over the same period. These failures resulted from technical problems consumers encountered with the sites, difficulties in finding products, and logistical and delivery problems after the sale.

The study is based on research with 12,000 consumers in the US and Canada conducted during the fourth quarter of 1999. The research includes focus groups, one-on-one interviews and surveys, and focused on consumers’ use of the Internet for personal reasons, at home or at work.

“Retailers tend to think of the North American online market as fairly homogenous, but current online consumers actually fall into three groups, each with a distinct set of demographics, behaviors, and attitudes,” said David Pecaut, Senior VP and Global E-Commerce leader of BCG. “We identified three waves of online adopters, distinguished by the length of their time online, as well as their distinctive activities and purchasing patterns.”

The first wave of online consumers, the Pioneers, are the 23.2 million users who have been online for three years or more and now comprise 29 percent of the online population, according to BCG. The 39.6 million Early Followers have been online for than one but less than three years and represent almost half the current online population. The First-of-the-Masses are the most recent consumers to go online, having made the leap only in the last year, and represent 18 million users or 22 percent of today’s online population.

With each successive wave, the online population is becoming more representative of the demographics of the mass market. While the demographics of Pioneers are consistent with the Internet-user stereotype of the young, male technophile, the Early Followers and the First-of-the-Masses are increasingly female, mature, less educated, and less affluent consumers.

All three waves of online consumers view the Internet as more about communication than commerce. More than 80 percent of all Internet users went online originally for communication purposes, while only 2 percent said they were motivated to go online to shop. Internet users spend 43 percent of their time online engaged in communication-related activities, primarily email. Information gathering, representing 27 percent of online time, is the next most popular activity. And time spent online is increasing: a typical Internet user will spend 15 percent more time online in six months than is the case today. Increasingly, online activities are replacing offline activities, such as paper-based correspondence and long distance telephone calls. Leisure and entertainment are also being replaced by Internet time.

Consumers who have had a satisfying first purchase experience online are likely to spend more time and money online. The satisfied first-time purchaser typically engaged in 12 online transactions and spent $500 during the past 12 months; the dissatisfied first-time purchaser spent only $140 on four online transactions.

“The first online purchase experience is the moment of truth for consumers and retailers,” said BCG Senior VP Michael Silverstein. “It is the beginning of a brand connection. Unfortunately, too many consumers are finding that shopping online offers convenience fraught with compromise. The frustrations and failures that are commonplace in these early days of electronic retailing could be the kiss of death for the brands of Internet retailers.”

Consumers identified many compromises or barriers to shopping online in the research. Among both new and experienced Internet consumers, anxiety over credit card security was the main barrier to purchasing online. Purchase process breakdowns were also a major irritant, as well as a deterrent to further online shopping. Twenty-eight percent of consumers who suffered a failed purchase attempt stopped shopping online; 23 percent stopped purchasing at the site in question; and 6 percent also stopped patronizing the retailer’s physical store.

“Online consumers are not a very forgiving lot, maybe because purchasing online is so new for most of them that they are in a constant state of evaluating it,” Pecaut said. “The stakes are high for online retailers who do not deliver.”

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