Customer Satisfaction Index Finds Satisfaction with E- Commerce Edges Upward
Friday, 24 February 2006
Customer satisfaction with the e-commerce sector is turning around after a slight dip last year. The sector improved 1.3 percent to an aggregate score of 79.6, according to the annual American Customer Satisfaction Index (ACSI) E-Commerce Report, which measures e-retail, online auction, e-brokerage, and online travel companies. The report also found that clear leaders are emerging within the e-commerce sector.
As the sector matures, customers’ standards for e-commerce sites continue to rise, and online companies struggle to keep up with the industry leaders and high customer expectations.
Also, customer satisfaction with e-commerce sites continues to score substantially higher than the national aggregate ACSI, which stands at 73.5 for the fourth quarter. Amazon rose 3.6 percent to 87, tying it with BN.com for the highest score of all retailers and service providers measured by ACSI. eBay is back to its all-time high of 78, substantially in front of all auction sites. Expedia had the greatest score increase in the online travel category, up 3.9 percent to 79.
“Some companies have really figured out how to take customer satisfaction to the next level, and the stakes just keep getting higher,” said online customer satisfaction expert Larry Freed, president and CEO of ForeSee Results.
“Customers are showing their preferences, and investors are going to take note,” said Claes Fornell, Director of the National Quality Research Center and founder of the ACSI, in a reference to the lead article in the January 2006 Journal of Marketing, which detailed the research demonstrating a direct link between ACSI scores and stock prices.
Online Retail: E-Retail Continues to Dominate Traditional Retail
E-retail is performing considerably better than offline retail in satisfying customers. According to the ACSI, customer satisfaction with online retail is nearly 12 percent higher than it is in the overall retail industry. E-retail scores climbed 1.3 percent from a year ago to 81, while the overall retail industry moved in the opposite direction, dropping 0.3 percent to 72.4.
“E-Retailers used to be at a disadvantage because customers can’t touch and feel their products, but they’ve figured out that there’s a whole lot more they can offer to make up for that,” said Freed. “Today’s online stores have evolved significantly, offering advances such as 360-degree views of products, customer reviews, side by side product comparisons, and extensive product information and specifications that often exceed what is available in a store or catalogue.”
Leading the e-retail category are Amazon and BN.com, both scoring 87 though each has a very different business model. Barnes & Noble is focused on one category of products and it is a multichannel retailer that is doing a very effective job meeting and exceeding the expectations of online book buyers. But 2005 holiday sales rose only 1 percent, and the question becomes how BN.com can convert satisfied customers into greater financial success while sticking to their business model.
Online retailing giant Amazon may have had its start in books, but it now offers a gamut of products from hundreds of third-party retailers. Last year, Amazon’s customer satisfaction score took a plunge as the retailer experienced growing pains from a retooled business model. The company made up most of the ground it lost, rebounding 3.6 percent in 2005, as customers became accustomed to this expanded business model. Amazon experienced its best ever holiday season, with 108 million items ordered and more than 99 percent of its orders shipped to meet holiday deadlines. But its profitability took a hit from implementing free shipping and implementing technological improvements, sending its stock price down.
“It’s reasonable to expect that such high levels of customer satisfaction will keep sales and revenue growing at Amazon in the coming year,” said Freed.
Online Auctions: eBay Increases Lead Over Competition
The online auction category moves up 1.3 percent to 78, largely on the performance of eBay, which also improved 1.3 percent to 81.
“When people think online auctions, people think eBay. That’s a tough hurdle for any competitor to clear. Bigger is better in the online auction industry, and eBay continues to grow and satisfy its customers,” said Freed. “It’s more likely that the real challenge to eBay will come from other online titans like Amazon and Google instead of from other online auction companies.”
Online Brokerage: Charles Schwab Rallies
Charles Schwab moved up 4.2 percent to 74 and helped drive the online brokerage category up 1.3 percent to 76. Since the company’s founder and namesake stepped back into leadership, Charles Schwab has improved financially and in customer satisfaction. Net income tripled for the fourth quarter 2005 form the same period in 2004. E*TRADE gained 1.4 percent to 71, and the All Others category gained 1.3 percent to score 79.
In contrast with e-retail, the online brokerage industry has not yet figured out how to take full advantage of the Web. Though a wealth of information is available on the Web for stocks, mutual funds and other investment options, much of that information is too sophisticated for the general consumer.
“Consumers spend more time researching sweaters online than they do researching stocks,” said Freed. “Your average consumer will buy stocks on recommendation rather than through research, even though there are lots of tools and analysis at their disposal via the Internet.”
Further hurting its cause, extensive media coverage of phishing scams and lost financial data has made many consumers wary of online financial transactions. Consumer preference for personal guidance with finance combined with a skepticism of online transactions may be reasons why multi-channel brokerages, such as Charles Schwab, tend to do a better job of satisfying customers than do pure play Internet brokerages like E*TRADE.
Online Travel: Expedia Pulls Ahead of the Pack
The 2004 ACSI scores showed that online travel companies were not succeeding differentiating themselves, but customers began to show their preferences in 2005. After years of parity in the online travel category, Expedia pulled ahead moving up 3.9 percent to 79. Travelocity and Orbitz each dropped 1.3 percent to 75 and 74 respectively. Expedia’s big investments in content, including cruises, packages from popular resorts, and user reviews, seem to be paying off.