Saturday, January 31, 2009

Retailers Strategies to Meet the New Economy and Internet

The results from the National Retail Federation's 7th annual State of the Industry Report provides some idea what the retailers are planning. while many of the retailers see the industry outlook as bleak, the ideas and strategies they are considering should benefit those who follow them.

Some of the defensive strategies include:
1. Managing inventories more closely
2. Increase supply-chain effectiveness
3. Increase labor productivity
4. Control operating costs.

Some of the steps they can take to control costs are:
1. Decrease store expansions or postpone the expansions to a later date
2. Decrease spending on information technology
3. Focus on activities that give an immediate return on investment (ROI)

According to the survey the top priorities, in order of importance are:
2. Cost reduction/containment
3. Employee retention and development
4. Product differentiation
5. Supply chain optimization

Some of the statistics that came out of the report include:
1. 69% of retailers said customer satisfaction/retention is a top priority for 2009
2. 12% report headcount decreases in the technology department compared with 3% last year.
3. 22% plan to increase technology headcount this year compared with 33% last year.
4. 90% of respondents to the survey sell products online
5. 60% have 80% of their assortment represented on the Web.
6. 30% report having over 20 million Web site visitors in 2008 compared with 14% that saw that level in 2007.
7. Some retailers have seen 20% of their volume coming from the Web.

The bottom line is retailers are taking immediate steps to survive in this market. Those who have invested their resources into customer-centric practices should have a more hopeful outlook than those who have focused on price and volume. All retailers should seriously review their strategy for using the internet. It is clear that even though the internet has only penetrated the retail market by about 16%, that percentage will grow and those customers who use the internet may become loyal through the internet.

Impact of the internet on Retail

Robert Howard has offered some interesting statistics in an article concerning purchasing on the internet. It appears the source of his statistics is the Pew Internet Project, Forrester Research, Jupiter Research and a Sterling Commerce survey.

Some of the key points in his article are:
1. More customers are going to the internet.
1a. 73% of adult Americans and 87% of teenagers are online today.
1b. 47% of adult Americans have a broadband internet connection at home.

2. More Americans are using the internet to research and shop.
2a. 70% of all online consumers use the internet to research products which translates into 16% of total retail sales.
2b. The trend is forecast to grow at a compounded annual rate of 17% through 2012.
2c. By the end of 2009 41% of all US retail transactions will be influenced by online experiences.

3. Customers' expectations for shopping across multiple channels is increasing.
3a. 85% of adults expect their online service levels to be the same as offline.
3b. 43% Americans identified online information a s the most powerful influencer of their purchase decision.
3c. 80% feel it is important to have a choice of shopping across multiple channels when choosing a retailer.
3d. 90% said it was important to be able to return an item purchased online in a physical store.

The bottom line is the impact of the internet in retail is continuing to grow and retailers must start to see the internet site the same way they see their brick and mortar site. It must be attractive to get the customer inside the site and then it must provide a great customer experience.

Saturday, January 24, 2009

Benefits of eLoyalty

In my recent blogs I have discussed the factors affecting eLoyalty as well as discussing the reasons customers might become loyal to a web site. I also blogged about understanding eLoyalty. While it was important to list some of the reasons that customers might become loyal to a web site, I have yet to discuss the benefits to the company of having a web site. Once again, I am referring to the masters thesis of Asim and Hashmi noted in my blog of Jan 9th.

Before I discuss the benefits of eLoyalty a good definition was suggested by Srinivasan, Anderson and Ponnavolu in an article in the Journal of Retailing, Vol.78Issue 1, Spring 2002 which states that eLoyalty is "the customer's favorable attitude toward an electronic business, resulting in repeat purchasing behaviour." This is more limited than the general definition proposed by Oliver in the Journal of Marketing, 63, Special Issue in 1999 where he defined customer loyalty as "a deeply held commitment to re buy or re patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or brand-set purchasing, despite situational influences and marketing efforts having the potential to cause switching behaviour."

The following list of benefits is not exhaustive but represents some of the benefits of a web site.
1. Increased revenue - The most obvious impact of a web site is that it offers another sales channel to the market. Recent data has suggested that the amount of business being done on the web continues to increase; hence, the web is becoming a market unto itself. Thus, it becomes imperative to market on the web.
2. Referrals - Once customers realize the web site works for them, the site, like any bricks and mortal business will provide a source for referrals. Web sites can carry the same word-of-mouth.
3. Price Premium - AS customers become more loyal, there is a greater likelihood that they will not shop the net, After each successful interaction, the customer is less likely to shop. This can be referred to as the "tie that binds." This translates into the the notion that each successful interaction with a customer creates an emotional connection and each time this is repeated, the connection gets stronger. Loyal customers are less likely to use the introductory coupons that are often used to bring in the new customer.
4. Operating costs - The cost of operating the web site is very close to a fixed cost. Once the web site is open, the cost of maintenance is very small against the benefit of the site.
5. Customer benefit - There is a customer benefit from the site that occurs as the customers become familiar with the site and find the ease of use reduces the time to place orders and the time to search.

The bottom line is that there are many benefits to an internet site and the loyalty that can arise when a site is well defined. The benefits accrue to the customer through an increased trust that the company behind the site provides superior customer service. A great site has no more loyalty than the customer service support behind the site.

Monday, January 19, 2009

Impact of Shipping on eLoyalty

ForeSee Results, a consulting firm which focuses on customer satisfaction for websites performed a survey of more than 9,000 shoppers during the Christmas holidays in 2008. Here are the results of their survey:
1. Avoiding shipping costs is the third most important response for why shoppers choose to buy in a store behind ability to receive the product immediately and being able to see or feel an item before purchase.
2. 18% shop in stores that have free shipping.
3. 33% said they bought from web sites instead of stores because the retailer offered fee shipping.
4. Consumers gave retailers who offered free shipping higher scores in every satisfaction category than those who did not offer it.
5. 60% of online customers said the availability of free shipping greatly influenced their choice to shop at one e-retailer.

The bottom line is that free shipping appears to have a direct impact on customer satisfaction, at least during the holiday season. The real test will be to determine if this was unique to the holiday season or will this customer response persist beyond the holidays. The second question to answer is whether this will ultimately led to eLoyalty.

Saturday, January 17, 2009

Why Customers Are Loyal to a Website

I was in a social gathering the other night when someone asked about my blog and when I mentioned that I was currently looking into eLoyalty (customer loyalty to a particular website) One guest immediately responded with the statement “there is no loyalty on the web.” While not everyone agreed with the comment, few could respond with any good reasons why a customer could be loyal to a particular website. Not wanting to monopolize the conversation, I gave a very limited response by saying that I thought good customer service might be a reason to return to a website. I think it is worthwhile to discuss the various reasons that a customer might decide to return to a specific website.

Reason #1 – Good customer service. As I responded to the comment about no loyalty on the web, I believe that good customer service add value to a website. The question I would pose is, if all else is equal, would a typical customer randomly change from one web site to another if one website gave excellent customer service and the other gave poor customer service for the same product or service?
Reason #2 – Broad product offerings. If I could find a website that offered more products than other websites, and if all else is equal, then a typical customer would migrate to the website that offered the one-stop shopping. I believe that one-stop shopping on the web has the same customer characteristic as it does in the brick-and-mortar business.
Reason #3 – Ease of use. I find some websites confusing and poorly labeled so that it is difficult to find the appropriate page or item. I believe that customers want a website that is easy to navigate and get to the right spot in a minimum number of clicks.
Reason #4 – Company reputation. There are some companies that have an excellent reputation and because of that reputation customers will return to their site. Companies such as Amazon, Staples, Costco have excellent reputations.
Reason #5 - Ease of return. Some customers will buy from a website because the company has a local brick-and-mortar location that will allow them to return the products locally and avoid possible shipping fees.
Reason #6 – Quick delivery from local suppliers. When buying a product on the web, sometimes it is quicker to deal with a company that is local so that low cost delivery can be as little one day. When dealing with companies at great distances, one delivery can impose significant delivery charges.
Reason #7 – Reliability. Some companies (both large and small) are more reliable than others. You can believe them when they make a commitment for delivery at a certain time and are willing and able to give accurate answers to questions.
Reason #8 – Support local businesses. Some customers like to support local businesses even when the price is slightly higher. By supporting local business, they not only are helping to support their community, they have a brick-and-mortar place to go to pick up the product.

I am sure there are addition reasons for eLoyalty, but I believe these reasons make sense without the need to perform any statistical testing.

The bottom line is that price is not the only reason people are loyal on the web. To say that customers always buy items on the web that have the lowest price is naive.

Friday, January 16, 2009

A Christmas Perspective from the Retailers

A brief digression from the eLoyalty blogs is necessary to document a brief survey regarding customer performance during the Christmas season. A survey of 815 consumers in random telephone interviews performed by the consulting firm, Cavallino, and underwritten by The Gordman Group conducted in the weeks before Christmas found the following:
1. Price as more important than selection to most shoppers.
2. 55 percent of shoppers said they spent less in 2008 than in 2007
3. 69 percent said they would spend still less in 2009
4. Consumers said that what mattered most to them was that stores carry what they promised.
5. Consumers also wanted fair every day prices
6. Helpful sales people were also important
7. Consumers were also looking for a friendly return policy (aka Costco).
8. Consumers found discount coupons less important
9. Consumers were also not interested in loyalty programs.

The bottom line for all retailers is to notice in the previous list the key ingredients to success are having the product available at a reasonable price and providing good customer service. This is a repeat of the basics of customer loyalty and good business practice. Simply slashing prices and offering bargains is not a long term strategy and it isn't what consumers want.

The next blog will go back to the eLoyalty subject and discuss some of the basics presented in the previous blogs. In particular, I will discuss some reasons why customers will be loyal to a website and then I will pose some counter arguments to the quick answer that customers will always buy the item on the web that has the lowest cost. I offer this discussion because in a recent discussion someone tossed the "obvious" comment that people go to the web to find the lowest price. I think there is more to the web than just finding the lowest price.

Saturday, January 10, 2009

Factors Affecting eLoyalty

Since the internet is a nearly perfect market because information is instant and buyers can compare the offerings of sellers worldwide, there is intense price competition which has a direct impact on loyalty. for this reason, there is a great need to understand any factors that might contribute to brand loyalty.

Once again I am referring to the Master's Thesis of Asim and Hashmi (E-Loyalty, Companies Secret Weapon on the Web) noted in my previous blog. The eight factors that appear to have the greatest impact on eLoyalty are:
1. Customization - this describes the ability to fit products and services to individual customers
2. Contact interactivity - The interaction between the e-retailer and the buyer. It is defined as the availability and effectiveness of customer support tools on a website and the degree to which two-way communication with customers is facilitated.
3. Cultivation - This is the extent to which an e-retailer provides relevant information and incentives to its customers in order to extend the breath and depth of their purchases over time.
4. Care - This is the attention an e-retailer pays to its customers in order to build long-term relationships.
5. Community - The community is the list of online customers which is organized and maintained by the e-retailer to exchange information and opinion about the products and services offered to other customers.
6. Choice - Since the e-retailer is a virtual supplier, he does not need brick-and-mortar to offer products and services, he can offer a greater variety than the traditional retailer. In addition he can form alliances with other e-retailers to provide customers with an even greater choice. This approach can reduce the mount of searching a customer has to do in order to complete his shopping.
7. Convenience - This simply refers to the simplicity of the web site.
8. Character - The character may be the most important aspect of the website since it is the aspect of the site which give the first impression in the mind of the customer.

Each of these factors are built upon references to published research by qualified academicians. The next step is to determine whether or not these factors have changed or are changing over time.

The bottom line is there needs to be experimental data developed that verifies these factors. Until that occurs we can only surmise these individual factors represent the major components of loyalty. The good news is that these factors make sense. I will write more about these later.

Friday, January 9, 2009

Understanding eLoyalty

I have been thinking and reading about loyalty on the web. Some refer to it as eLoyalty. Loyalty to a web site is very different from loyalty when the customer communicates directly with a person. I have long pointed out that loyalty consists of the product, the process and the relationship. When dealing with the web, the relationship is usually lost. Few companies have installed the capability for a customer to contact the company from their web site (even though the technology is available).

The notion of loyalty being based on product, process and relationship changes when the customer is dealing with a web site and there is no person from the company involved in the transaction. The simplest way to view this change is to replace the company employee with the web so that the three components of loyalty are product, process and the web.

Since it is clear that the personal relationships are being replaced with a web site, there are two questions to consider; namely, how much influence does the web site have on customer loyalty and what are the factors that influence consumer perceptions of website effectiveness.

This first blog is being based on a master's thesis entitled "E-Loyalty, Companies Secret Weapon on the Web." It was written by Muhammad Asim and Yaqoob Hashmi at Lulea University of Technology and was published in 2005 under the supervision of Asa Wallstrom. The information in this thesis will be tested against other research in future blogs.

The authors note that an effective website must accomplish four principle objectives: (1) attracting, (2) informing, (3) positioning, and (4) delivering. One way to evaluate a web site would be to evaluate each website in terms of their of contribution's to these aims. Of course, each of these principles are multi-dimensional and may not all have equal importance.

The few variables that appear to be important are:
1. Security and privacy
2. Downloading time
3. Virtual branding
4. Banner advertisements
5. Ease of access
6. Ease of navigation
7. Graphical interface preferred
8. Positioning capability
9. Use of cookies.

The key quality factors which highly influence the website design are:
1. Clarity of purpose and contents
2. Consistency, menus and site maps
3. Pages, text and clicks
4. Communication and feedback
5. Search
6. Fill-in forms
7. Selection
8. Product/service information and availability
9. Delivery information
10. Policies, charges, terms and conditions
11. Reliability
12. Customer Service
13. Frequently Asked Questions (FAQs)

I will spend some time developing these factors in future blogs. However, in my next blog I will investigate the factors that appear to influence customer eloyalty. The bottom line is that there has not been sufficient study of the web side of customer loyalty. Since it is likely that web purchasing will continue to grow, a well founded understanding of the factors that impact eloyalty need to be examined and tested.

Saturday, January 3, 2009

The Impact of Johnny, a Lowly Grocery Bagger

I just watched an amazing video. The address is I rarely recommend a video but this one is very special and makes a great point about the impact of making customers feel special. It is a story about a Down's syndrome bagger by the name of Johnny. I am putting this in my blog because I don't ever want to forget the impact of even the lowest job in an organization on customer loyalty.

In essence the story of Johnny the Down's syndrome bagger at a local grocery store starts with the store hiring a consultant to provide training to the staff about customer loyalty and customer satisfaction. The training included everyone who touched the customer and that included Johnny.

Johnny listened carefully to the consultant and wondered how he could increase customer satisfaction and loyalty. He concluded that he could make the customers feel special by giving them a thought for the day. His answer was to give every customer whose bags he packed a thought for the day on a piece of paper with his name on the back. His father printed out a number of copies for Johnny each day and Johnny signed his name. Then he would place one of the slips of paper in the bag of each shopper that went through his line.

Within a few weeks the number of people waiting in the line for Johnny to bag their groceries was 3 times as long as the other lines. When the store manager tried to get people to use the other lines, those in line would simply say they were willing to wait for Johnny. One customer went so far as to tell the store manager that she used to frequent the store once a week but now she comes to the store every day to get Johnny's thought for the day.

The bottom line is that the business increased and the customer loyalty increased. Other employees caught Johnny's desire to think of something that will make the customer feel special and amplified the impact that Johnny had initiated. The second lesson is that customers WANT to feel special and when we can do that REALLY GOOD THINGS HAPPEN!

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