Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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A new key performance metric for multi-channel retailers is the Multi-Channel Value Index, which includes 33 of the retailers in the Top 40 research. This satisfaction-based metric projects the contribution of the web site to sales through any channel and provides a valuable point of comparison for retailers with multiple sales channels. The Multi-Channel Value Index takes into account the intangible value represented by consumers using the web as a research channel, before completing a purchase via a store or catalog.
The MCVI factors the retailer’s online customer satisfaction score into an equation that incorporates likelihood to purchase online and likelihood to purchase through another channel, generating a single score that can be readily compared across retailers to gauge how effectively the web site is contributing to overall sales. MCVI scores, like all ACSI-calculated numbers, are shown on a 100-point scale. Higher scores indicate retailers that are more effectively driving overall sales through the web site shopping experience.
On aggregate, the Multi-Channel Value Index score has increased 2.6% since the holiday season, showing that retailers are more effectively using the online channel to drive overall sales during the non-holiday season than during the hectic holidays. As customer satisfaction and the Multi-Channel Value Index are tightly related, it’s not surprising that the aggregate Multi-Channel Value Index score would rise along with satisfaction.
The word-of-mouth connection
In many cases, we saw a correlation between high satisfaction and high MCVI scores for multi-channel retailers. The top three multi-channel retailers in terms of satisfaction also boast the top three Multi-Channel Value Index scores.
It’s interesting to note that two of the leading retailers in Multi-Channel Value Index scores have a strong direct marketing heritage while the third is a strong bricks-and-mortar retailer.
The survey data shows a strong correlation between customer satisfaction and word-of-mouth recommendation. This is not surprising since the ACSI methodology measures “recommendation” as a direct outcome of customer satisfaction and clearly, consumers need to be highly satisfied to make recommendations to others. Some new business metrics attempt to simplify the performance metrics landscape by focusing exclusively on recommendation as the engine for growth and the Top 40 data provides some interesting insights as to the accuracy and validity of this approach.
The Top 40 data shows that among online shoppers who would be considered “passive” supporters (as defined by scoring “likelihood to recommend” as a 7 or 8) and who reported that they purchased the product they were shopping for, 77% said they purchased from the retailer they were surveyed about. Even more striking was the reported purchase behavior of “detractors” (defined as those scoring “likelihood to recommend” at 6 or under) -60% of the detractors that went on to purchase the product said they purchased from that retailer.
The characterization of detractors as unhappy customers who will impede company growth through negative referrals is called into question by the Top 40 data. 58% of detractors said they were not likely to communicate their experiences with the retailer to others. And of those that were likely to communicate, nearly half would say something positive.
In short, growth is fueled by the combination of recommendation, retention and loyalty, all of which are direct outcomes of satisfaction.
Satisfaction by category
While the top 40 index measures individual performance, there also were some differences between merchandise segments and by retailer type. Among product categories, apparel/accessories had the highest satisfaction score of 76, followed by mass merchants at 75. Of all types of retailers, web-only merchants led all companies with a score of 79 while manufacturers had the same score of 74 as they had in holiday 2005.
The Top 40 Online Satisfaction Retail Index measures the strengths and weaknesses of the industry’s market leaders compared with one another and in their respective categories. But regardless of size, customer satisfaction is a key performance metric, and one that savvy multi-channel and online retailers of all sizes must heed in order to gauge online success. Research shows online retailers must strive to continually stay ahead of rising customer expectations and their competition. Knowing how to analyze and act on changing consumer demand is the difference between keeping satisfied customers and giving away online sales to the competitor who can.
Larry Freed is president and CEO of ForeSee Results.
How the survey was conducted
The Top 40 Online Retail Satisfaction Index measures browser satisfaction with the top 40 online retailers by sales volume from the June 2006 Internet Retailer Top 500 Guide to Retail Web Sites. Satisfaction data was collected through FGI Research’s SmartPanel-a nationwide group of approximately 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. During March and April of 2006, ForeSee Results and FGI Research collected data from 8,400 respondents who had visited the top 40 online retail sites within the last two weeks but didn’t necessarily make a purchase.
The ACSI is a cross-industry benchmark of customer satisfaction for seven economic sectors, more than 35 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 goes beyond accurately assessing current satisfaction to predict how site enhancements will drive both satisfaction and future behavior tied to loyalty, such as future purchases.