Internet retailers fail to deliver the goods

Well, 1999's festive season was certainly was an e-Christmas. But for those etailers that failed to deliver, it could be their last.

The season of goodwill highlighted delivery and inventory problems on both sides of the Atlantic. Analysts have warned under-performing sites to buck their ideas up or consumers will vote with their clicks and go elsewhere.

Melissa Bane, director of Internet Strategies at the Yankee Group in Boston, said the 1999 online holiday shopping season was a major Internet "reality check".

"Consumers now know that while the Internet can offer great prices and convenience, it can be risky," she said.

Disappointing sites
Ernst & Young conducted a post-Christmas survey among US online shoppers and found that while the season's online sales figures are expected to be between $10 billion to $13 billion (in the US alone), consumers were disappointed.

Toy giant Toys R Us received the most complaints with 13 per cent singling it out as a disappointing site. Almost a third of respondents faced stock problems, 21 per cent failed to have them delivered on time, while 18 per cent found the site too slow.

Other etailers singled out included Best Buy, Buy.com, eToys, Walmart, JC Penney, KBToys and eBay.

According to research from Andersen Consulting, 40 per cent of Internet shoppers in the US reported problems with online stores in the pre-Christmas rush, with 64 per cent citing stock shortages as the most common complaint.

Delivery problems hit 40 per cent of respondents, 38 per cent felt the delivery charge was too high, and 36 per cent experienced connection or download trouble [see Top 10 Problems Experienced by Internet Buyers].

Consumers take their custom elsewhere
Despite these findings, the company found the overall satisfaction of online shoppers has risen, suggesting experienced users are not bothering to persist with such poor performing etailers.

"Thirty-five per cent of online shoppers who experienced problems on a particular site left that site for another," confirmed Steve Johnson, a partner at Andersen Consulting.

"Given high customer acquisition costs, etailers can't continue to lose one of every three consumers and expect to survive."

Analysts warn that the 21st century will see more startups fighting for the wallet share of European consumers, making the ability to retain high value customers even more crucial. Etailers will have to invest more in customer service, back office systems and marketing just to keep in the game.

"We'll see the criteria for success become much harder to maintain. Therefore, the smaller, weaker players will be absorbed or disappear," predicts Bane.

"2000 will be the year of dot-com shakeout. We'll see the winners buy up smaller players to leverage their customer bases and technology assets," she added.

How etailers can keep the customers satisfied
According to Nick Jones, an analyst with Jupiter Communications in London, for too long etailers have been focusing on customer acquisition instead of establishing meaningful high value relationships with customers.

He recommends etailers adopt a multi-channel, automated customer service strategy. For example, an online broker should send out an automated email to customers that trade once a month, and for those that trade more frequently also provide a telephone hotline. The most treasured customers - those that trade daily - should be invited to conference calls with analysts.

"It's about giving your most valuable customers the most number of ways to do business with you," said Jones.

Talking on the telephone
But each etailer must choose the way that suits its customers and products best. For Michael King, managing director of online electronics retailer 21store.com, that is spending time on the phone with customers.

"I'm not saying we spend 45 minutes with everyone, there are different types of customer. There are the ones that want to tell us things, ones that trust our advice, and those that don't and just want to buy," he explained.

King admits this model is not right for all products, but if someone is spending £450 on a GPS system or a Fuji camera, he believes they deserve this level of personal advice. He feels such service is vital to build a site's reputation and win more customers through word of mouth recommendations. "You can't do that by hype," he said.

The boo.com experience
Online fashion retailer boo.com knows all about hype. It invested heavily in adverts in glossy magazines and billboards which got the industry talking, but left consumers waiting months for the eventual launch.

Chief retail officer Tobin Ireland told vnunet.com the company knew that customer service had to go right across the board and that the site's front-end and back-end systems had to be cutting-edge and robust straight from launch.

Ireland explained this was complex, as while boo.com is a global etailer, it offers truly local services with local language email and phone customer service in 16 European countries as well as Canada and the US.

Ireland warned his critics that boo.com is not about to disappear: "This platform will take us through this year and beyond. We will continue to invest where appropriate, we have a secure and positive investment base."

He is happy with the site now, adding that many customers are registering their details with 'cluboo', allowing the company to enter a dialogue with them.

"It's the first step towards a more focused offering. It leads us to provide a personalised experience, giving whatever boo.com means for each individual," he said.

The word on the street
Streets Online, which owns four entertainment sites including audiostreet.co.uk and dvdstreet.co.uk, also believes good customer service is paramount - most of its business comes from word of mouth.

"The first purchase is critical. It's a case of once bitten twice shy, and consumers tend to generalise," said marketing director Bianca Cory. She added that 66 per cent of sales are repeat purchases.

They key, according to Cory, is controlling the supply chain so the consumer experience is not ruined by late or incorrect delivery, stock shortages or damaged goods.

Streets Online doesn't have its own warehouse, but all customer deliveries are sent direct from its offices rather than straight from a wholesaler.

It will be cheap for a startup to launch into CD sales if it outsources everything, but it won't have built up good enough relationships with the suppliers to get new CDs through customers' letterboxes on the morning of release, said Cory.

"The lesson is, don't outsource until you understand your own business," she added.

Putting the customer first - naturally
Online health site Thinknatural.com goes further by actually owning its own warehouse. It feels this is most suitable for the type of products it sells.

"We believe we need to control directly this part of our business because it is the only part that touches the customer most," explained Carol Dukes, chief executive of Thinknatural.com. "We need our customers to be the only priority for the fulfilment operation. Since our product range is both large and complex, I prefer to have permanent Thinknatural staff responsible for picking and packing, rather than a distant team of people who are not directly part of our company."

So to still be in the running by Christmas 2000 Jones believes etailers should look to Amazon as the best example of one that's got it right, despite its continued lack of profit.

"The likes of Amazon spent their way to the front and stayed there because of good customer service. They dotted the 'i's and crossed the 't's. You need the marketing spend to get the mind share and therefore win the wallet share."Top 10 Problems Experienced by Internet Buyers

source Andersen Consulting*