October 28, 2004, 12:00 AM

SPONSORED SUPPLEMENT: Live Chat: The new reality of online customer service

In the early part of the decade, some retailers experimented with live chat. But to many it was exotic technology, best left to teens chatting away on their AOL connections. But no more. Today, live chat is a fact of online life and will only become more entrenched in consumers` behavior as this generation`s young people grow into tomorrow`s consumers. "If you look at how the 12- to 25-year-old group communicates with each other, it`s live chat," says Greg Fettes, president and CEO of 24-7 InTouch, a provider of live chat, e-mail and call center services to retailers and others. "When they decide they want customer service, that`s the natural way they`ll go."

In fact, some young consumers are so accustomed to using live chat that retailers risk losing them if they don`t offer it as an option, some say. "If a customer is online with a question, it`s best to keep them online to ask the question," says Robert Locascio, president of live chat provider LivePerson. "If you ask them to go offline and telephone or even send an e-mail where they have to wait for the response, you`re liable to lose them."

Dual uses

Live chat is still early on as a customer service option--only 1.4% use it more than once a week, according to Forrester Research Inc. But its use is surprisingly consistent across age groups and so as it catches on, it`s likely to appeal to older consumers as well as to the natural market of young consumers. A Forrester survey over the summer showed that 15.5% of men up to age 34 have contacted a company`s customer service operation via live chat. That figure drops only slightly to 13.1% for men 35-44 and to 12.2% for 45-54. Even in the 55-64 group it slips only a tad below 12% to 11.9%.Only after age 65 does it drop considerably to 7.9%.

Among women, live chat users are a somewhat smaller percentage, yet still a robust sampling, given the still early nature of the approach. Up to age 44, 13% of women have contacted customer service via live chat. That slides only to 12.3% in the 44-54 group and 11.2% in the 55-64 group. After age 65, the proportion falls to 8.4%.

Frequency of contact, though, reflects the tendency of younger consumers to use live chat. Of men under 25, 3.8% use live chat for customer service once a week or more. That falls to 2.6% for 25-34 and about 1.3% through age 64. Then it falls to 0.6% for 65 and older. A similar pattern holds for women, with 3.1% of the under 25s using it once a week or more, about 1.8% for 25-54, then 1.4% for 55-64 and 0.8% after age 65.

24-7 InTouch`s business today reflects the current state of live chat. About 2% of its revenue comes from its live chat offerings. But Fettes expects that proportion will grow to 40% in three to five years. "As today`s younger generation that has grown up with this technology gets older, retailers will be left behind if they don`t have live chat," Fettes says.

Live chat serves two purposes as an online tool. One is for customer service and the other is a sales vehicle. Both present challenges for retailers trying to understand how to use live chat.

Reflecting the fact that not all customers will instantly click on the live chat button if they have a question, LivePerson has just released its Timpani suite of products. LivePerson describes Timpani as an "integrated communication platform for selling online" that weaves together a self-service knowledge base, e-mail and chat and will offer VOIP--voice over Internet protocol--next year. It features an analytics package that looks at and interprets what customers are doing online and then offers options to help them take the next step.

Escalation and the right tool

The key to successful use of live chat as a sales tool, Locascio says, is escalation--and matching the right customer with the right means of communication. Take customer interactions, for example, at StanleyTools.com, a LivePerson customer. "If you`ve got someone looking for a power saw, which is a high-margin product, the chat channel might be the best way to engage the customer if you sense that he needs help," Locascio says. "But if you have someone looking at drill bits, a low-margin item, e-mail might be the best."

Since it implemented live chat, Stanley has decreased e-mail interactions by 70%, Locascio says, resulting in significant cost savings. Because one agent can handle many chats at a time, the cost of engaging in chat is $1.20 per interaction, he says. E-mail costs $2.40 per interaction and a phone call is $6. "You can double or triple productivity over telephone calls," he says.

Timpani also includes a self-service knowledge database that customers can access online. The database includes a natural language search functionality that understands what customers are shopping for and then points them to the sales option appropriate to the product.

The analytics engine then monitors customer behavior and makes decisions based on the site`s experience as to how to direct the customer to the next level or to the appropriate contact channel. "The engine is smart enough to analyze traffic patterns and understand what`s happening," Locascio says. "It never really ends."

LivePerson also integrates all interactions into a customer database so that if the customer contacts an agent, the agent will have all information about the customer`s interactions with the company at his fingertips. "This allows the company to control how the customer interacts with it," Locascio says. "It puts the right channel with the right customer."

Entry level cost of Timpani is $500 a call center seat per month for chat, e-mail and the knowledge base. It sells in pairs of seats so the minimum investment is $1,000 a month. It offers a stripped down version of Timpani for small business at $99 a month. "We always tie sales to ROI," Locascio says. "When someone goes with us, they reduce costs and increase sales."

Proactive chat

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