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Sunday, June 15, 2008
E-retailers must invest a lot more to keep customer loyalty
by Don Davis
Each year for the past decade a steady stream of consumers has flowed into the ranks of online shoppers, providing a natural lift for e-commerce. But that stream is slowing noticeably as the pool of consumers who have not shopped online shrinks each year, leaving online retailers with the challenge of increasing sales from existing customers.
Those customers are increasingly experienced, not only at shopping online but also at using the Internet in general. In growing numbers, they watch videos on YouTube, have pages on MySpace or profiles on LinkedIn, rely on reviews from other consumers, and read and post to online forums and blogs.
They expect retail web sites to be as informative and interactive as the rest of the Internet. And they won’t hesitate to click off a site if they don’t find what they want—and that includes not just products and product data, but other information they need to make purchase decisions.
“Historically, they would call in and ask questions, but now they’re not doing that,” says Roy Bielewicz, director of Internet marketing at StylinTrucks.com, a web and catalog retailer of truck accessories. “If they don’t find the information on your site, they’re likely to go somewhere else.”
To meet customers’ rising expectations, online retailers are packing more content into their sites, often using video and other rich media, adding customer reviews and exploring how to use social networks and blogs to promote their brands. Some are addressing the pain points that keep many consumers from making online purchases, ranging from security concerns to font sizes that challenge aging eyes.
These efforts take place as online shopping increasingly becomes a mainstream activity. 49% of U.S. adults had shopped online as of September 2007, according to a survey by the Pew Internet & American Life Project, up from 22% in 2000.
Have money, will shop
Among more affluent Americans, online shopping is even more commonplace. 66% of adults with household incomes between $60,000 and $100,000 and 79% with incomes above $100,000 have purchased on the web, according to the Pew survey, which is conducted by telephone.
And, with each passing year, more consumers become experienced web shoppers. 32% of online shoppers last year had been buying on the web for seven years or more, up from 18% in 2003, according to Forrester Research. By contrast, only 9% of web shoppers last year had been shopping online for less than a year, a sharp decline from 16% just one year earlier. 55% of last year’s newbies were women, Forrester says.
A major driver of e-commerce growth is the extension of broadband connections to more U.S. homes. With broadband, web pages load five to 10 times faster than with dial-up connections, making online shopping more engaging. 58% of all U.S. homes, nearly 68 million households, will have broadband connections by year’s end, up from 48% just two years ago, according to Forrester Research.
Broadband users are more likely than dial-up users to shop online—74% to 59%—and if all dial-up users switched to faster connections the incidence of online shopping would go up by 6%, Pew says. That figures to provide a new source of online shoppers as broadband proliferates in coming years.
As more U.S. homes get broadband, broadband users become more typical of the U.S. population as a whole. One sign of that is the average income of households with broadband declining from $69,000 to $63,000 in the past year, according to a Netpop survey by research firm Media Services LLC. The median U.S. household income was $48,201 in 2006.
The social web
Faster connections at home—and at work for many—have paved the way for millions of consumers to interact with each other, create their own online content and get comfortable with online video. A Pew survey in December 2007 found 48% of Internet users watch web videos, 39% read blogs, 30% post online reviews, and 16% participate in social networking sites like MySpace, Facebook or Friendster.
Those behaviors have big implications for online retailers, says Ken Burke, chairman and founder of e-commerce technology provider MarketLive Inc.
“The No. 1 trend impacting e-commerce is social networking and social computing,” Burke says. “Consumers today are more connected to other consumers, and they trust other consumers. Connected to this is another trend: consumers are looking for web sites they trust.”
Many e-retailers are responding by adding social elements to their web sites, and by reaching out to consumers as they socialize on other web sites. Much of this is new, and in some cases evidence of a sales lift from these initiatives remains sketchy.
Product ratings and reviews may have the best claim to boosting revenue. 82% of consumers surveyed last year by consulting firm Deloitte & Touche LLP said consumer-written product reviews directly influenced their buying decisions, and 69% passed reviews on to others. Pet supplies retailer Petco Animal Supplies Inc. reports that consumers who view web pages with top-rated products convert at a 60% higher rate than other visitors, and that buyers return products with only one to five reviews 135% more often than those with 50 to 100 reviews.
But consumers read reviews critically. In the case of one retailer, products that gained the top rating, five stars, converted at 11 times the rate of unrated products—but four-star products produced 18 times more sales, more than the higher-rated products, says Fiona Dias, executive vice president of partner strategy for GSI Commerce Solutions Inc., which operates the e-commerce business of the unnamed retailer.
“People might be a little skeptical of five-star ratings, thinking that maybe employees or the vendor wrote the reviews,” Dias says. “Four stars was a comfort level where customers think, People like me probably wrote the review.”
Video for all
A strong case can be made that online video can increase sales. Video stands out for its huge audience—116 million U.S. consumers watched web videos in February, according to research firm Nielsen Online. And video is not just for kids. YouTube, a subsidiary of Google Inc. that Nielsen says attracts 60% of video viewers, attracts all age groups: 18% are under 18; 20%, 18-34; 19%, 35-44; 21%, 45-54; and 21%, 55 and older, the company says.
That helps explain the broad response to video from all types of web shoppers. FirstStreetOnline.com, which sells gifts, gadgets and household products aimed at older consumers, last year introduced a weekly video called FirstStreetReports in which a mature man provides non-technical explanations of products First Street sells. Sales and conversion rates on those products went up by double-digit percentages, says Mark Gordon, president and CEO.
Targeting a different demographic, affluent women in their 40s, Saks Direct, the online arm of tony department store Saks Fifth Avenue, realized enough of a sales lift from introducing video interviews with fashion designers last year that Saks.com launched in March a video catalog of 17 ensembles. All the items can be purchased by clicking on the “shop this look” link next to the video window.
Retailers are also making use of other rich media products, such as three-dimensional views of products that allow consumers to view items from all sides. Improvement Direct has in the past year created such 3-D views of more than 3,000 of its best-selling products, boosting conversion rates 20-30%, says Christian Friedland, CEO.
Zoom is a highly valued feature, rated somewhat or very important by 86% of online shoppers with broadband connections, according to a Netpop survey. Zoom is especially important in the clothing & accessories and décor & home improvement categories, Netpop says.
Aiming to provide ready answers to customers’ questions, StylinTrucks.com, the truck accessory retailer, has integrated videos, how-to articles and Frequently Asked Questions pages into site search, and added product reviews. That’s increased the time visitors spend on the site by at least 10%, Bielewicz says.
Customers create content
For Newegg.com, which launched in 2001 as a site primarily selling computer components to video game players, informational content on the site comes largely from customers themselves who post product reviews and ask and answer questions on the site’s community forum. “People will ask, ‘What’s in your system? What graphics card did you use? What power supply? These guys love to talk to each other,” says Bernard Luthi, vice president of merchandising at Newegg.
As evidence, he points to the more than 900,000 reviews posted to the site since its launch, including more than 250,000 in the past year. Newegg is preparing to enable customers to video their reviews and upload them to the site.
While Newegg employees participate in forum discussions, they don’t recommend products. And the company does not measure the value of the forums and reviews by whether they directly drive purchases.
“It’s about getting closer to that customer, making sure we’re giving them every opportunity to give us feedback. That’s what drives our business,” Luthi says. He’s convinced the strategy is working because more than half of new customers are referred by other customers and because the company, which has been one of the fastest-growing online retailers since its launch, grew again by more than 25% last year to $1.9 billion in online sales.
Most of Newegg’s customers are tech-savvy men between 18 and 35. But the challenge of staying close to customers as they use the Internet crosses all demographics, including the mostly women shoppers targeted by eFashionSolutions LLC, which hosts web sites for some 30 fashion and entertainment companies.
Those clients—which include luxury brands like DKNY and Oscar de la Renta as well as more moderately priced marks like baby phat and JLo—find their profit margins challenged by the growing number of consumers who use comparison shopping engines to find the best deals online. Traffic to comparison shopping sites was up 17% in February over the previous year, according to web measurement firm comScore Inc.
Part of the answer is segmenting customers and making them offers based on their preferences, says Ed Foy Jr., CEO of eFashionSolutions. But he also embarked late last year on a strategy of leveraging social networking, by finding consumers who love the brands he supports and who will express their love for DKNY or JLo on social networks and blogs.
That’s part of creating a buzz around those products, which is the best protection against those brands becoming commodity items that can be compared to the many other apparel brands available online. “If it’s a trend setter, it’s not affected by price comparison,” Foy says.
Foy recently experienced the downs and ups of the social web. It began when a consumer attacked one of his clients on a blog over the conduct of an online sweepstakes, feedback he calls “a retailer’s worst nightmare, especially when it’s so transparent to the rest of the world.”
But other customers, including the sweepstakes winner, came to the defense of the brand in subsequent posts, neutralizing the criticism. Experiences like that convince Foy of the importance of identifying and cultivating online brand advocates. That includes making sure their orders are shipped the same day, providing them with special packaging, and sending them thank you notes and gifts.
It’s early days for such initiatives, and still hard to calculate return on investment. The same can be said of e-retailers’ efforts to generate sales from the explosively growing social networks, of which the two most important are MySpace and Facebook.
While only launched in 2003 and 2004 respectively, MySpace and Facebook have become as much a part of the life of U.S. teenagers as McDonald’s and iPods. MySpace was the top U.S. Internet site in terms of page views in February, and Facebook was sixth, according to comScore.
But consumers go to these sites to socialize, not shop, data suggests. Only 3% of online shoppers said they used social networks to research purchases in a survey last year by JupiterResearch. And ads on these sites generate relatively few clicks: the average cost of an order from an ad on a social network site was a hefty $50.11, compared with $19.33 for paid search and $6.85 for e-mails to customers, according to a retailer study this year by Forrester Research and online retailer association Shop.org.
Retailers can create their own pages on MySpace and Facebook, and both sites have in the past year made it possible for retailers to distribute shopping applications that consumers can add to their own profile pages. But retailers do not seem to have struck gold.
Newegg created pages on both MySpace and Facebook because “we heard from our customers that’s an area where they live on a daily basis,” Luthi says. Sales from those sites remain small, though growing, and the conversion rate of clicks from MySpace and Facebook is slightly higher than average, he says.
Zazzle, an online retailer that lets consumers create customized items such as t-shirts, tote bags and mugs, launched applications last fall designed to drive traffic from MySpace and Facebook pages to Zazzle. But that approach is not effective because consumers have little incentive to interrupt their socializing to shop, says James Heckman, chief strategy officer at Zazzle.
The real opportunity is to micro-target social networkers, taking advantage of the information they provide themselves, such as their favorite bands, sports teams and movies, says Heckman, who came to Zazzle from MySpace parent company Fox Interactive Media where he helped craft a $900 million search and advertising deal between MySpace and Google.
“If you’ve got a 16-year-old girl whose favorite band is the Beatles, you can advertise a woman’s shirt that’s stylish for a teenager with a Beatles logo,” says Heckman. “How great is that?”
That opportunity is especially inviting for Zazzle, which Heckman says has created merchandising relationships with over 15,000 music groups that would allow consumers to customize items with images and logos of those bands on the Zazzle site. Zazzle has begun testing such ads targeted to MySpace and Facebook users based on their profiles, and click-through rates are more than 10 times higher than on conventional ads, Heckman says. If the test proves successful, Zazzle will expand the micro-targeting program by the third quarter, he says.
By moving beyond static ads, Zazzle is thinking about social networks in the right way, says Donna Hoffman, co-director of the Sloan Center for Internet Retailing at the University of California-Riverside. “You have a community of like-minded people that have self-identified as interested in certain things and you have an opportunity to be in front of them in ways that have meaning for them,” Hoffman says.
Boomers and beyond
While users of MySpace and Facebook skew toward the young, there are also growing opportunities for online retailers among older consumers. Among Baby Boomers, born between 1946 and 1964, 42 million shop online; among consumers born before 1946, 12 million shop online, according to Focalyst LLC, a joint venture of AARP Services Inc. and Kantar, a group of research and consulting firms.
And, at least among older consumers with above-average incomes, online shopping is growing. 65.6% of those over 50 with income of $50,000 or more said they had made at least one Internet purchase in the past year in a 2007 survey by research firm The Media Audit, up from 50.2% in a 2004 survey.
Aiming to make online shopping easier for those consumers, ShopPBS.com last year added icons that enable visitors to increase the font size of text on product pages. Elderluxe.com, which caters to wealthier older consumers, has moved much of the detail about each item to the main product page so visitors “don’t have to work to get to it,” says Patrick Conboy, founder and president.
While many consumers worry about the privacy of data they provide to web sites—even those who shop online—older shoppers are more worried than most. 82% of those 65 and older agree or strongly agree that they don’t like to give their credit card or personal information to web sites, compared with 79% in the 50-64 age range, 74% of those 30-49 and 71% of consumers 18-29, according to the Pew survey.
While especially troubling to older consumers, 75% of all Internet users have some concern about providing personal or payment information online. Eliminating that concern could increase the percentage of online adults who shop via the web from 66% to 73%, the Pew report projects, suggesting that any retailer can boost sales by inspiring trust in visitors.
A world of opportunity
Another way U.S. online retailers can increase sales is by reaching out to the growing number of online consumers outside of North America. The global Internet user population grew 265% from 2000 to 2007 to 1.3 billion consumers, more than 1 billion of them outside of North America, according to Internet market research firm Miniwatts Marketing Group.
Many of those consumers are savvy enough to find online-only U.S. toy retailer Ty’s Toy Box, whose selection includes a number of exclusive or hard-to-find items based on such popular cartoon shows as Doodlebops and Caillou. Without a major marketing push, international orders have grown from 2% of Ty’s sales in 2003 to 13% last year, says Ty Simpson, CEO.
Using carrier DHL he delivers products abroad within three days, and believes that reliable delivery has led to more sales. “They’re confident they’ll get their product,” Simpson says. “That’s a big part of why it grows. Consumers are coming back.”
Even with the proliferation of comparison shopping sites, search engines and new online competitors, e-retailers that meet consumers’ expectations can keep them coming back. 48% of traffic to e-commerce sites in March and 67% of sales came from consumers who typed in a retailer’s URL or clicked on a bookmark, says web analytics firm Coremetrics Inc.
Consumer loyalty is not dead, it’s just that online retailers have to do more today to earn it.
Who’s not online
110 million U.S. adults do not shop online. Who are they?
by: Shawna Seigel
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