E-Shoppers Are Now E-Spenders

Eggnog chugging and mistletoe kisses are among the few rewards for holiday shoppers after weeks spent fighting punishing crowds and long lines. But millions of consumers have found an alternative. Shopping online is a way around the season's stressed-out, tantrum-throwing children (and adults) and indifferent sales help. Compared to last year, Internet retail sales this holiday season are expected to jump 21%, to $16.8 billion, according to Jupiter Research, while overall retail sales are forecast to rise closer to 5%.

That discrepancy largely reflects the fact that it's easier to grow faster from a much smaller base. Yet something deeper is at work. Online shopping's lure isn't just dirt-cheap prices, flashy Web graphics, or even free shipping. In a perverse way, the coolest, techie tricks can hinder Internet retailing by clunking up and slowing down a site.

MOTIVATED TO PLEASE. It seems that the virtual world's top retailers are succeeding because they've learned the simple and time-honored tradition of keeping their customers satisfied. The idea is straightforward -- at least in concept: Provide a good experience consistently, and buyers will keep coming back. "What defines a retailer is how well it serves a meaningful group of customers," says Ken Seiff, chief executive of online fashion retailer Bluefly.

That's the strategy more and more e-tailers hope to take to the bank. Recently, e-commerce sites have been surpassing physical stores in satisfying customers. According to the latest American Customer Satisfaction Index update, published by the University of Michigan, satisfaction with Web retailers rose six percentage points during 2002, to 83 on a scale of 100. That compares with a flat rating of 75 for store-based retailers.

Perhaps because Internet shops such as Bluefly have only a virtual venue in which to prove themselves, they're much more motivated to please consumers. "Online retailers are run by an innovative group trying to succeed," says Seiff, whose own site's traffic and sales are growing, though it's still unprofitable.

"MORE SERIOUS" ENDEAVOR. Household names such as Amazon.com, Yahoo!, and eBay have led the charge on consumer satisfaction. But a variety of retailers, from gourmet grocer FreshDirect to subscription DVD renter Netflix to the Sears' Web site, have honed their customer-pleasing skills as well. They've all focused on elements such as site usability and design, flexible return and exchange policies, attractive shipping options, and after-purchase support -- all of which have improved measurably from just a few years ago.

Online selling "has been a more serious" endeavor, says Phil Terry, CEO of New York-based Creative Good, a Web-usability consultant. "Companies are more committed to creating products and services that actually work." The number of consumers who cite credit-card security, return policies, and on-time delivery as concerns has decreased, according to Jupiter.

Some of the biggest Web successes are "multichannel" retailers -- those that sell both on and offline. Many, like REI, an outdoor gear purveyor whose online operations are profitable, are increasingly trying to figure out how to better integrate online and offline resources to produce higher revenues and earnings. "We're trying to expand our view of our customers," says Joan Broughton, REI's vice-president for multichannel programs. Her focus is helping customers find and buy the right item online, deliver it however they want, even in stores, and to provide excellent phone support for both efforts.

TWEAKING THE DETAILS. Another store-based retailer taking this holistic approach is office-supplies retailer Staples. Its products are largely commodities, so getting customers to use its site or store vs. a competitor's is all about consistent service. "We're always remodeling the site, making small or large tweaks," says Colin Hynes, Staples's director of usability.

Like REI's Broughton, his responsibilities stretch across Staples' catalogs, stores, and Web site. "We want to make [shopping] so easy that it's seamless," he says. To that end, Staples.com recently set up an easy reordering function that lets a customer quickly tick off from a checklist items ordered in the past.

Part of Hynes's job is to home in on the tiniest details. To understand how consumers categorize items in their heads, his team recently commissioned a survey of 5,000 people. Among the things Hynes learned was that many people were flummoxed while trying to find correction fluid on the Web site. Traditionally, Staples had included it in a section labeled "Pens and Art Supplies." But with the new customer input in hand, the mistake-masking goop was reclassified under the clearer heading of "Writing Supplies." Hynes anticipates that its sales could pick up as a result of the change.

"LIMITED MEDIUM." For every smart e-commerce site, plenty of others could still use revamping. Creative Good's Terry says the average retailing site still deserves a grade of only "C." That's up from the "D" or "F" he would have assigned during the bubble years. But it also means that there's still plenty of room for improvement. According to Jupiter, some 61% of sites recently surveyed said they had done some kind of infrastructure upgrade ahead of the holiday season.

The two biggest problems on commerce sites are perhaps the most basic -- navigation and product description, says Terry. "Shoppers are still having trouble making a purchase decision" because they can't find what they want, or they can't decide whether to buy based on the info they're given. He says plenty of sites get caught up in presenting splashy features that few consumers are interested in. "The Web is a limited medium," he adds. "If you don't realize that, you'll create something that's hard to use."

Terry tries to persuade his clients to focus on perfecting the basics. For Liz Claiborne's plus-size site Elisabeth.com, his firm conducted interviews with eight shoppers and 20 Elisabeth.com employees to pinpoint and fix the site's weaknesses. "We figured out a balance between compelling and simple," Terry says. The relaunched site improved sales conversion -- or the rate at which shoppers go through with a purchase -- by 57%, and average order size rose 25%.

IDEAS NEEDED. Internet retailers can still do much more once they've mastered their ABCs, says Jakob Nielsen, principal of Nielsen Norman Group, a Web-usability consultant. Shoppers now tend to regard multimedia content as an unwanted distraction, he says, and most e-retailers would do well to bypass it. He adds that high-quality photos and plain text have worked better. Yet, "it should be possible to use multimedia to communicate better," Nielsen adds. "We need to develop more insight in that area."

Internet retailers can also get better at inspiring shoppers, Nielsen says. "What if I want to buy something for my nephew?" he asks. Some toy retailers have been good at narrowing choices based on a kid's interests, but generally that's still not done well, Nielsen says. For the most part, he adds, Web retailers aren't effectively helping shoppers find the right gift when they arrive without something specific already in mind.

That will change, of course. This holiday season, Amazon.com, which is often cited by its peers as a online-retailing pioneer, is experimenting with ways to influence buying. Its recently launched A-List highlights a celebrity and his or her gift ideas -- a song or essay that might sell better with a celeb's endorsement. Amazon's Bill Carr, director of books, music, video, and DVDs, says the A-List has done well. For example, when comedian Jack Black recommended a DVD by his rock band, Tenacious D, its sales shot up 300% in one day.

TOMORROW'S TECHNOLOGIES. Amazon also features some attempts at personalization, including a tool called Listmania, where customers create lists of their favorite products. And in its "So You'd Like To" section, customers create guides for achieving goals such as writing a novel or starting a business. Amazon's "Gift Wizard" feature helps shoppers find gifts by price, age, gender, and other parameters.

Truly customizing and personalizing the online retail experience would "change how consumers think and act," says Larry Freed, CEO and president of Ann Arbor-based ForeSee, which tracks online customer service. However, for e-commerce to transcend shopping as we know it would probably require novel technologies -- more refined searching methods, for example -- that have yet to be tried, he says. If e-tailers' drive to win customers is any indication, though, more breakthroughs could come sooner than later.

BusinessWeek Online originally published this article on 24 November 2003.