December 26, 2000, 9:55 AM

The Loyalty Factor

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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, CDnow, and, 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.”

The perfect balance

The bottom line to loyalty is that retailers must take into account all the factors that customers experience when shopping at a site-then make sure the retailer has control over making all of them happen. “There are many facets that build loyalty-customer service, price, accessible information, trust-we are trying to tag consumers according to their hot buttons,”’s Erickson says. “Not only do we want to be a great shopping experience for our customers, but we also want to be thinking on their behalf. We are trying to make their life easier as a consumer so they are surprised and delighted by what we can do for them. We try to create a compelling relationship that makes them want to come back to us.”

Keeping tabs on loyalty

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

- Examine online loyalty in the context of other data.

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.

- Synchronize measurement with other channels.

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.

- Coordinate data sharing with partner sites.

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.

- Use data to refine the marketing spend.

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.

- Offline capabilities are a plus.

Most consumers prefer traditional stores with online channels for all types of products. Offline business models also serve as a cash cow while a company transitions to the Internet. They allow companies to fund online operations and build share across channels-which consumers desire.

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