Online Consumer Spending Growth Slowing

The rate of growth of online spending per person is declining even though total online retail spending is increasing, according to a study by the The Wharton School of Business. The study also found there is a significant dropout rate among online shoppers, and 15 percent of online buyers from 1997 did not buy online in 1998.

The results are part of the Wharton Virtual Test Market, which tracks more than 23,000 panelists, including 791 participants who have been on the panel for each of its three years in existence.

“No matter how well electronic retailers have done this holiday season, there are some fundamental factors that appear to be eroding the growth of spending and growth of the market,” said Jerry Lohse, research director of the Wharton Forum on Electronic Commerce, which sponsors the Wharton Virtual Test Market. “Only 50 percent of the dropouts from 1998 returned to make a purchase in 1999. Further, new buyers are not arriving as quickly to take their place. The implication is that online shopping is just another way of shopping.”

According to the Wharton research, many forecasts for e-commerce spending and market growth assume linear increases in per person online spending. Based on the latest Virtual Test Market survey, current levels of consumer online spending are at approximately $29.2 billion, and Wharton the research projects that Internet retail sales will climb to $133 billion by January 2004.

Concerns about privacy and trust were among the most important factors that distinguished buyers from non-buyers online, the study found.

“People are primarily dropping out for privacy or security issues, or because they’ve had a bad shopping experience online and want to deal with a real person,” Lohse said. According to the study, concern about “monitoring by third parties” was the highest predictor for not purchasing online and an unwillingness to “trust the business with private data” was also significant.

Research done by Jupiter Communications and released during the summer of 1999 found that 64 percent of online consumers are unlikely to trust a Web site, even if the site prominently features a privacy policy. The report also found that the attention focused on Internet privacy issues by the government and media are serving as fuel for consumer fears, and will affect both online advertising and digital commerce revenue unless sites take action and educate and communicate with online consumers.

If it’s privacy and security concerns that are keeping shoppers away from online stores, the Wharton study came to the same conclusion as most every other study when it came to why people buy online — convenience. For example, the Wharton research found one predictor of whether someone will buy music online is travel time to the nearest music store. A lack of time, a “wired” lifestyle, and not demographics are important indicators of whether someone will shop online, the study found. In addition, increased experience with the Internet, higher numbers of hours online at home, use of the Web for financial services, and a significant reliance on email all increased the likelihood of spending online.

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