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Online Retail is booming even in the current economic climate

08 2008 Friday

By Dr. Philip Rhodes in Ecommerce

Online retail is booming, even in the current economic climate, and has been growing significantly year after year for the past 6 years. However the online shopping landscape is changing, with declining customer loyalty; larger retailers focusing on price alone, severe price competition, the increase in cost comparison web sites and multibrand synergies.

Similarly consumers shopping behaviors are constantly evolving, with consumers now normally researching prior to purchases on multiple sites, often referring to comparison sites, and using search features within sites when looking for specific products. Sites must no longer just offer the best value for money (including price, service, mix of products, etc.), but they have to offer an exceptional user experience, which engages the consumer.

So what are today’s online consumers looking for?

Price is the most important factors for the majority of consumers. To ‘catch’ these consumers, key web pages have to stress savings, but just ‘shouting’ about the price is not enough, consumers must be able to find what they are looking for, once on a site, with ease. And they must feel that the site is providing the right type of product information.

Research conducted by fhios has continually shown that consumers look for the following ‘reassurances’ when deciding to buy from an online retailer. These are listed from most important:

That they are saving money or have value for money
Free shipping, rebates/coupons, sales, etc.
Privacy policies and guarantees, particularly early in the check-out process
Order tracking
Customer ratings and reviews
Customer service, including live help, in-store returns, etc.
Email alerts on promotions and offers

Interestingly, this prioritized list of ‘reassurances’ does change when considering ‘loyal’ consumers; once a relationship has been built between the consumer and the retailer some of the ‘reassurances’ are taken for guaranteed and other factors become more important. We have observed that customer ratings and customer satisfaction, as well as alerts are far more important for ‘loyal’ customers.

So in a changing online retail environment, there is the contradiction between ‘price hunters’ and ‘loyal followers’. To turn the ‘price hunters’ into ‘loyal followers’ is about ticking the primary needs of the consumer, and then ensuring the online experience goes beyond their expectations by building in loyalty programs to keep them interested.

To create an effective loyalty program, retailers need some kind of discount to lure customers into the program, but then they also need to create other means of locking the customers in (ensuring long-term loyalty) once they are part of the program. Retailers create these switching costs by moving beyond discounts to delivering an array of targeted benefits and services to their loyalty program members. Here are some guidelines we recommend to retailers:

Provide benefits that appeal to each targeted group’s unique needs and desires.
Focus on rewarding desired changes in behaviour, not just giving member’s benefits for taking actions they would have taken anyway.
Encourage members to unify their purchases by offering increasingly valuable rewards the more they spend.
Offer rewards that are cost-effective and provide both immediate and inspirational incentives.
Influence customers at multiple points in their purchase decision-making cycle (for example, at home, when they enter the store, while shopping online, etc.)

Different consumer segments will respond differently to different types of rewards, it is just a matter of identifying the needs of the individual customer groups and focusing the loyalty program for that group.

Loyalty programs have much to offer retailers in terms of increased customer insight, improved reputation, brand equity, etc, as well as decreasing price competition, increasing customer retention, decreasing marketing costs and allows a more comprehensive understanding of the customer.

Dr. Philip Rhodes, Ph.D., FRSA, fhios Director of Research. Philip holds a Ph.D. in Information Design from the University of Portsmouth. He has extensive research and teaching experience in hypermedia design and information architecture. He speaks fluent Portuguese, having lived and worked in Brazil. Before joining fhios, he worked with US solution providers Rare Medium and Sapient, as Director of Information Architecture. Specialising in offering user centric online solutions within the banking, education and telecommunications sectors. He also taught at several universities in Brazil and the UK, and has been widely published. Philip is the Director of Customer Experience Research & Design at fhios, and a Fellow of the Royal Society of Arts. (http://www.fhios.com/team.htm)