May 2, 2008, 12:00 AM

Raising the Stakes

With consumers adopting a more sophisticated approach to shopping online, e-retailers must invest a lot more to keep customer loyalty.

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.

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