Satisfying Customers

How the Top 100 e-retailers rate on satisfaction and purchase intent

Shrinking consumer spending and intensified competition for fewer dollars make customer satisfaction more important than ever. Academic research shows that customer satisfaction, when measured scientifically, is a predictor of sales (online and offline), loyalty, share of wallet, word-of-mouth recommendation, company financial success, and even stock prices.

In fact, customer satisfaction scores translate to real dollars and can serve as a forward-looking metric; a single-point increase in customer satisfaction for a Top 100 e-retailer predicted an average increase of nearly 9% in online sales in 2008, in spite of the recession. Moreover, a highly satisfied online shopper is 71% more likely to purchase online from the retailer than a dissatisfied shopper.

Because of the predictive value of customer satisfaction as a metric, Internet Retailer asks us each year to measure satisfaction for the Top 100 of its Top 500 e-retailers. Ranking e-retailers by revenue shows what has already been accomplished. Customer satisfaction can predict what’s to come. In a troubled economy, smart companies are keeping a very close eye on this key indicator of present and future success.

Despite the clear value of customer satisfaction, in our annual spring study, we found that satisfaction with the Top 100 e-retailers has fallen since last year, from an aggregate score of 75 (on the study’s 100-point scale) in spring of 2008 to a score of 73 in 2009.

This finding is not a surprise, given the state of the economy, but the trend is troubling when we consider the crucial role that online customer satisfaction plays in supporting future revenue increases. Of the companies that were measured in both 2008 and 2009, the customer satisfaction scores of 53, more than half, dropped year over year, while those of only 16 increased and 15 stayed the same. These figures should serve as a wake-up call for an industry that may be cutting costs or corners at the expense of satisfying customers. It’s a tradeoff few companies can afford to make.

The best . . . and the rest

Netflix.com (85 on the Index’s 100-point scale) leads the Top 100 for the third year in a row, and Amazon.com (84) again comes in a close second place. Avon, Drs. Foster and Smith, Newegg.com, and QVC.com all have a satisfaction score of 81, though QVC dropped three points since last year.

Online sales were up about 7% last year for the market as a whole, but because of the link between customer satisfaction and revenue, some e-retailers with high or increasing online customer satisfaction experienced much better than average revenue increases. Revenue at perennial high satisfaction scorer Amazon, for instance, grew 30% from 2007 to 2008.

When evaluating e-retail success, it’s important not only to look at the highest-scoring sites, but also at those experiencing the biggest year-over-year increases. Of the 81 sites measured in 2008 and 2009, only 16 experienced increases year over year. Value retailers had some of the biggest gains in satisfaction scores: Kohls increased satisfaction 6% year over year to 76, and Costco (74), Target (75) and Wal-mart (77) all saw online customer satisfaction increase by 3%. Revenue increased 59% for Kohl’s, 42% for Costco, 5% for Target and 10% for Wal-mart. It’s too early to know if their 2009 satisfaction increases will predict revenue increases in these individual cases, but these increases probably reflect the increased premium that shoppers put on finding low prices and good value.

However, discount stores were not the only ones to thrive in a down economy: more upscale brands like the Company Store (Hanover Direct), Peapod (sales up 10.1%) and Victoria’s Secret (sales up 19.9%) also increased year over year, showing that it is possible to improve customer satisfaction during a recession, even if you don’t have the lowest prices.

Declines in satisfaction were broader and deeper, with 53 sites losing ground in customer satisfaction since last spring, including Etronics (-11% to 63), CVS (-8% to 71), Neiman Marcus (-7% to 70), and Williams Sonoma (-6% to 73), to name a few. These sites had different reasons for their declines: one was lack of competitiveness on price in a tough economic climate; another was the variety, availability, and appeal of the merchandise. Not every e-retailer has the same priorities for improvement.

Will they or won’t they?

In addition to measuring customers’ satisfaction with each of the Top 100 e-retailers, ForeSee Results also measured customers’ purchase intent. The purchase intent metric quantifies the likelihood that site visitors will buy from a retailer through any channel (web site, store or catalog call center). Since customer satisfaction drives and predicts purchase intent, looking at both scores in relationship to each other reveals how the web site is supporting a company’s overall sales.

 If both the online satisfaction score and the purchase intent scores are above average, it means the company is doing a good job leveraging the web site to increase sales. Further investigation should be done to see whether purchase intent is higher online or offline. For example, Walmart.com has a satisfaction score of 77 and a purchase intent score of 90, both well above the e-retail industry average of 73 for satisfaction and 78 for purchase intent. Drilling down into Wal-mart’s data shows that site visitors are more likely to purchase in a store than online. A multichannel retailer like Wal-mart could dramatically reduce costs by driving more customers to purchase on the web site rather than in stores.

 High online satisfaction with low or average purchase intent is an indication that an e-retailer is not quite meeting customers’ needs in a way that translates to purchases, whether it’s because of weak competitive positioning or not enough of a call to action on the site. E-retailers in this position need to determine which changes to which specific web site elements will increase purchase intent, a statistical process than can be accomplished through voice-of-customer feedback.

 E-retailers with low or average satisfaction but high purchase intent are leaving money on the table in terms of growth. E-retailers in this position are often those with a strong multichannel presence and brand, which is what drives sales more than the web site itself. Since satisfaction drives purchase intent, loyalty, and a host of other behaviors with a direct impact on the bottom line, e-retailers in this category would be well served to undertake a serious evaluation of how to make the web site contribute more tangibly to sales, both offline and online.

 E-retailers with low online satisfaction and low purchase intent should sit up and take notice. In this kind of competitive environment, no one can afford to be in this position for very long.

Category overview

L.L. Bean and Victoria’s Secret led the Apparel & Accessories category with customer satisfaction scores of 78. Newcomers to the Top 100 Blair.com (Orchard Brands Corp.) and Urban Outfitters came in at 74 and 67, respectively. The highest-scoring Apparel & Accessories Internet pure play was Zappos.com, at 76.

Newegg.com came out on top, with 81, in Computers & Electronics, but the category had a few notable decreases. Apple.com fell five points to 75 and Etronics’ satisfaction score plummeted from 71 to 63.

Internet pure play Drugstore.com held its own against other Food/Drugs competitors, with a satisfaction score of 77. Retail chain CVS dropped six points to 71. WeightWatchers.com has a satisfaction score of 75, which is notably higher than competitor NutriSystem.com’s score of 68. Both are new to the Top 100 this year.

As online retail revenue continues to grow at a slower rate due to the recession, companies must monitor and manage the expectations and needs of their customers as they evolve the e-retail experience. Web sites that aggressively strive to meet the expectations and needs of their online audience will leap ahead, positioning themselves for success as the economy improves while competitors languish.

Larry Freed is president and CEO, ForeSee Results Inc.

How the survey was conducted
The Top 100 Online Retail Satisfaction Index measures browser satisfaction with the top 100 online retailers by 2008 sales volume as reported in the 2009 Internet Retailer Top 500 Guide. Satisfaction data was collected through FGI Research’s SmartPanel, a nationwide group of 1.6 million consumer households that have agreed to participate in opt-in surveys, and analyzed using the methodology of the University of Michigan’s American Customer Satisfaction Index (ACSI). During February 2009, ForeSee Results collected data from 22,815 respondents who had visited the top 100 online retail sites within the previous two weeks whether or not they made a purchase.

The ACSI is a leading economic indicator and a cross-industry benchmark of customer satisfaction for seven economic sectors, more than 43 industries, and nearly 200 major companies in the United States, measuring approximately 45% of the U.S. gross domestic product. Applied to the web, the ACSI methodology goes beyond accurately assessing current satisfaction to predicting how improving online customer satisfaction will foster future behaviors tied to loyalty, such as purchases.

About ForeSee Results
ForeSee Results is a provider of online customer satisfaction measurement using the University of Michigan’s American Customer Satisfaction Index methodology.

About FGI Research
FGI Research provides market research and information solutions to improve the speed, accuracy, and impact of business decisions by combining research methods, online samples, and advanced analytics and communications.