The Loyalty Factor

A customer can then use the site’s view-to-scale engine and framing feature, which help the customer visualize just how big or small the artwork actually is and how it will look in a particular frame. Shoppers also have the option of purchasing a frame that the site recommends or one of their own choice. If customers have a particular spot on the wall they are trying to fill, they can search the site’s collection of paintings and photographs by desired size. While Paintingsdirect offers no online chat or live customer service feedback, customer questions are answered via e-mail within a day. Once a customer completes a transaction, Paintingsdirect assures delivery on or before its scheduled date and provides the buyer with information and a tracking system regarding shipment. The customer can return the painting for any reason within ten days of its arrival.

“For any business to be sustainable, you must have customer loyalty,” Bourron says. “If you have to recruit customers again and again, it won’t be sustainable. If we do an excellent job of providing the service we provide, then we have an amazing opportunity to build loyalty.”

As a gauge of the loyalty the site has generated, the company receives a lot of spontaneous e-mail from mostly first-time customers who say they will shop the site again and recommend it to friends. In addition, Paintingsdirect monitors purchasing behavior, customer counts, and purchase values, which average between $500 and $600.

“Some customers have bought six, seven, eight paintings,” Bourron says. “In my wildest business plan I never thought we would get such high repeat purchases. Some customers even receive their painting and place an order for another on the same day. That is the best direct results of the loyalty we are building with our customers.”

While many e-retailers went into business believing that numbers and technology are what count, many are finding that the numbers won’t be there without one major ingredient: service. A recent study by Internet strategy consulting firms Bain & Co. and Mainspring notes that e-retailers must “treat customers like assets, not transactions, to build loyalty,” it admonishes retailers: “Understand which customers are repeat vs. one-time shoppers, then identify the factors that are important to customers and measure satisfaction.”

Drugstore.com, for instance, directs a lot of energy into market research. The company conducts focus groups and surveys that help identify features customers want on the site and what keeps them coming back. From that information Drugstore.com has successfully launched several sticky features on its site, such as “your list,” which keeps track of every product a customer has ordered.

When a customer needs to repurchase an item, he/she simply goes to the list, clicks on the item and the product is automatically added to the shopping cart without a lengthy search of the site. “That helps make shopping more convenient,” customer retention manager Jackie Erickson notes, “which is why it is so important to get customer feedback—it allows us to design a strategy that makes them happy.” As a result, 50% of Drugstore.com’s orders in the first quarter of this year came from repeat buyers.

The Bain and Mainspring findings also indicate that loyal online customers spend more, refer more people and are more willing to expand their purchasing into new categories. The more often a customer visits a site, the more likely the customer will spend an increasing amount of money and generate more profits for the online retailer.

For instance, luxury retailer Ashford.com reports that in the fourth quarter of last year, 11% of purchases were from repeat customers, accounting for 20% of Ashford’s revenue. “When repeat customers come back, their purchases are almost double the size of their first time purchase,” says Mary Lou Kelley, vice president of marketing. “That shows we are building trust and that our customers like the experience and feel comfortable coming back and spending even more money.”

The same is true for Drugstore.com. “When customers do repeat, their average market basket increases over time,” says Judith McGarry, vice president of strategic partnerships for Drugstore.com. “From first time to third time we see the basket almost doubling.”

And similar experiences occur across the board. The Bain and Mainspring study shows that among apparel sites, the average repeat customer spends 67% more overall in the third year of a shopping relation-ship with an online retailer than in the first six months. And on average, each apparel shopper refers three people to an online retailer’s site after a first purchase. After 10 purchases, that same shopper has referred seven people to the site. For consumer electronics, the average customer has referred 13 people after 10 purchases.

“Delighting customers is the clear determinant of e-business success or failure. Online shoppers want their lives to be made simpler—with the offline world as their bench-mark,” says Chris Zook, head of Bain and Co.’s e-commerce practice. “For the most part, their needs are fairly simple: good secure service, fair pricing and timely fulfillment. The few companies that succeed in these areas have significant advantages over their competitors and a business model that, in the long run, is best positioned for long-term success.”

For Ashford that means tracking all customer service components that lead to conversion and loyalty such as the average wait time on phone calls, the time it takes to respond to a customer’s e-mail, what percent of orders that were ordered by 5 p.m. get out the door every day, and for every one that didn’t go out, finding out why it didn’t.

“The Ashford experience is about making customers feel they can really depend on us and that we will pull through for them day in and day out,” Kelley says. “Our customers depend on us to do whatever it takes to make them happy. We know that brand, selection, and value are all im-portant but if you have all of that without the great customer experience and customer service, then you won’t develop customer loyalty.”

Jupiter also reports that online consumers place a high level of importance on easy returns: 85% of shoppers say that it is an important factor in their site selection. Ashford, for example, offers customers a 60-day return policy on all new watches and a 30-day return policy on all other products, such as jewelry. Eddie Bauer allows customers to return items bought online to any physical store.

Enhanced product information also is critical, says Jupiter. Content must supplement the gap created by an inability to physically touch or see a product. Increased levels of information will lead to smarter purchasing decisions that result in satisfied purchasing experiences that deepen the relationship between customers and companies.

Drugstore.com is a big believer in the importance of credible, independent information. Although it doesn’t have Web chat, customers have access to an online pharmacist, beauty advisors and product guides that help them find answers to specific questions. Responses come via e-mail within 24 hours while inquiries to customer service are answered within eight hours.

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And Drugstore.com allows customers to offer reviews and opinions about products sold on the site. “We are interested and eager to get into the minds of our consumers,” McGarry says, “This is an excellent communication tool and a great way to generate loyalty on the site. Our customers know they can buy these types of products almost anywhere, but knowing they can get the truth about a product makes them feel better about shopping our site.”

Facing the challenge that online shoppers can’t interact with merchan-dise and store personnel like they can in physical stores, Eddie Bauer and other online retailers are providing technology that allows customers to manipulate items in 3D as well as more accurately depicting textures and colors.

To relieve any fear about purchasing fine jewelry online, Ashford makes the process risk-free by using several techniques. It provides a tremendous amount of product information, clear and detailed photo-graphy and experts that customers can call or chat with online.

What does drive loyalty is investments in site and servicing functionality, which has a bigger influence on online purchasing. To increase purchasing, Jupiter says sites must provide better prices, easier price comparison, increased security, and the ability to find items more easily.

Commodity sites such as Amazon.com, CDnow, and Drugstore.com, where competition is stiff, appear to be making serious headway in these key areas.

For Seattle-based Amazon, pressure selling has taken a backseat to helping shoppers make purchasing decisions—even if that means the customer buys nothing. This entails providing book and other product reviews by experts and customers. Information such as this, the company believes, is empowering to the customer. “We don’t want people buying the wrong thing because that certainly doesn’t build customer loyalty,” a spokesman says.

Also in the forefront for Amazon is delivering the customer experience. This meant building up its distribution capabilities throughout 1999 to deliver on its fulfillment promises and providing 24/7 customer service by e-mail and phone.

Amazon also believes that price, brand, and rewards play into the total customer experience. “It’s the sum of a lot of little things—some as minor as “one-click” and as important as 4 million book titles—that add up to the kind of experience that we want to provide our customers,” the spokesman says.

For the largest and most successful Internet retailer, it has paid off. Amazon reports that 76% of its business came from repeat customers in the first quarter of this year. “That’s a strong endorsement. Even as we grow by 95% and add 3 million new customers in a quarter, we are continuing to serve existing customers at a very high repeat rate,” the spokesman says.

At CDnow, with some 850,000 visitors a day and 3.7 million purchasing customers, 60% of its revenue is from repeat customers.

To achieve that measure of loyalty, Wendy Hyer, director of customer retention, says providing shoppers with relevant information, good customer service and personal-ization is key. Using past purchase information and customer provided information, Hyer says CDnow’s e-mail program is the most effective tool the company has to encourage customers to come back. “Through our e-mail program, we keep customers informed about specific artists they are interested in as well as music categories. By knowing what our customers’ current and past behavior is we can target something more appropriately to them.”

But Hyer acknowledges that a loyal customer isn’t always measured by repeat purchases. She says that many of CDnow’s younger customers take advantage of free digital music down-loads and she considers them to be loyal users. “There is no neat and tidy equation that says somebody is loyal,” Hyer notes. “A customer could have come to CDnow and bought from us three times in the past six months and then all of a sudden we haven’t seen them come back in three months, their loyalty may be at issue. So it isn’t just number of times a customer comes to the site, it’s the number of times and the recency of visits.”

To find out just how loyal your customers really are, Forrester Research Inc., Cambridge, Mass., recommends e-retailers follow these steps:

To understand who their best customers are, retailers must combine loyalty data with customer return rates, contacts with the customer service department and order volume and frequency.

For the most accurate and holistic view of customer loyalty and satisfaction, retailers must synchronize loyalty data from all channels—building on their offline loyalty programs to promote online shopping.

Online companies that don’t use offline channels should make equity commitments or sign partnerships with other online pure-plays to share data between sites, giving them richer, cross-category customer loyalty profiles.

By tracking where customers come from and measuring their satisfaction, retailers can separate browsers from buyers and shift their marketing dollars to channels that generate the best leads.