Using the Web to Reach Customers | Electronic Commerce (Charles River Media Networking/Security)

The rules are the same. To succeed in e-business, just as in brick-and-mortar, you need customers. And, keeping customers is vastly cheaper than getting new ones. High rates of customer retention (and the referrals that accompany happy consumers) can mean the difference between success and going back to the drawing board.

The challenges that e-businesses face, however, in earning and retaining customers are different from those confronted by traditional business. A shopper who drives to the bookstore is not likely to put down the book he wants and drive to another location because of a line at the checkout stand. Someone looking for the biggest selection of CDs cannot go to 20 stores in 6 states in half an hour to check their selection. And, once you have received personal attention from someone at a store, helping you find exactly what you need, it isn’t hard to decide where to go next time.

The options and flexibility of doing business online put much more control in the hands of the consumer, placing a premium on the performance, effectiveness, and reliability of an organization’s Web site. There is no one to apologize to Internet customers when the service goes down, or when an image is missing, or to explain what an error message means. And, alternatives are just a click away.

For online consumers, the user experience is the most significant factor in customer retention. Customer experience comprises a range of issues, including ease-of-use, dependability, speed, as well as less quantifiable aspects of a Web site. As the Internet matures and evolves into a ubiquitous, if not preeminent, medium for business, those companies best able to monitor their Web sites and ensure a positive, rewarding customer experience will have an unparalleled advantage in the race to create and retain loyal customers.

The Shift to E-Business

There is no free lunch, though, and along with the benefits of doing business in the new economy comes a new kind of customer, one with different expectations and standards by which companies are judged. Web sites must offer a consistently positive customer experience to win over consumers. Inspiring loyalty is the biggest challenge to e-businesses, and e-consumers are a tough group to win. Thus, the attraction of moving an established, traditional business to the Internet (or of starting a new, pure-play Internet business) involves a variety of factors:

Global reach
Higher profile
24 7 availability
Targeted focus
Cost savings

Global Reach

A small organization no longer has to be a local organization. Anyone with Web access (in a living room in Chicago, in a log cabin in Alaska, or in a caf in Bordeaux) can spend their time, and their money, at any online business.

Higher Profile

A company can have a significant Web presence and profile, even with relatively modest depth and breadth to its inventory. On the Internet, a small but very efficient company can have the profile of a much larger, deep-pocketed competitor.

24 7 Availability

E-businesses do not have to close at the end of the day. Information and services can be available any time, any day, allowing revenue to be earned without interruption.

Targeted Focus and Cost Savings

Companies do not have to be all things to all consumers. Through the Internet, individual customers can get goods and services tailored to their needs. Significant savings from, among other things, streamlining inventory and distribution channels are possible in effective e-businesses.

New Medium and New Expectations

Internet consumers expect e-business to be faster and more extensive, with more options and services, than brick-and-mortar alternatives. They expect their experience online to be easy, as uncomplicated as buying a newspaper or filling the car with gas. And, if they encounter any problems with the site, or have difficulty understanding how it works, or are otherwise frustrated, they know they can go somewhere else, to another Web site, and be there in no time.

Speed Wins

Speed is crucial for successful e-businesses. Consumers expect Web sites to be fast. A useful starting point is the eight-second rule of thumb. The rule says that a significant number of users are unwilling to wait longer than eight seconds for a page to load or an action to be executed, and as technology improves and speeds increase, the time users will wait before leaving the site is likely to decrease. Many factors, from fundamental site architecture to network traffic at certain times of the day, affect how fast a site will function. Vital for success in any e-business is ongoing monitoring of the performance of its site, identifying cycles of usage and ranges of performance, and making necessary modifications and upgrades to ensure speed.

There have been attempts to quantify the economic loss due to unacceptably slow Web page download speeds, which is one aspect of e-business customer churn. It is estimated that as much as $473 million is lost per month from customer bailout from impatience.

If It Isn’t Broken

Key to the user’s experience and level of comfort in e-business is consistency. Whereas a brick-and-mortar business could not redesign the store every month, e-businesses can, and some do. The relative cost for changing the look and feel of an e-business is low, and the appeal of adding new features is a strong temptation. There is a fine line, however, between a “sticky” site, one that attracts new customers and urges old ones to return, and a site that changes so often and in such ways that customers must relearn the site. Instead of spending the extra time to deal with the hassle, they will go to the competition, the one that is fundamentally consistent in its presentation and functionality, and they will stay there.

No Experience Required

Many new e-business consumers are novices not only with online transactions, but also with the Internet in general, and this complicates the issue of glitches and raises the ante for Web sites to function smoothly. A computer neophyte is less likely to understand, or have patience with, technical difficulties. A recent survey conducted by ICL, an e-business services company, indicates relatively high levels of stress and anxiety caused by computer problems for “typical” users.

Forty-nine percent found computer problems more stressful than being stuck or delayed on public transportation.
Seventy-nine percent found computer problems more stressful than having to spend a weekend with a spouse’s parents.
Twenty-three percent found computer problems more stressful than being left by a partner or spouse ^[1].

No Web site runs perfectly 100 percent of the time, but those that are close to 100 percent (Web sites that minimize outages and are able very quickly to detect and correct problems when they do occur) have a significant advantage. Web sites that frustrate users scare them away; Web sites that consistently offer pleasant, easy experiences keep their customers.

The Often Missing Piece

A less tangible but equally vital aspect to customer loyalty in e-business is trust. For consumers, participation in a typical Internet business model requires divulging personal information for registration purposes, often including sending credit card numbers to the site. Increasingly, customers are cautious when sending such information and wary about sites that they suspect may not adequately guard the privacy of their demographic and financial information. Web sites that have prolonged outages or frequent transaction failures break the chain of trust with their consumers, pushing them to other providers that instill stronger confidence and, therefore, loyalty, in their customers.

To be successful, an e-business has to be:

Sophisticated and fast
Easy and consistent
Extremely reliable ^[1]

Without these, customers will click away, going to the sites that give consumers the interaction with e-business that they expect and require.

Acquisition, Retention, and Referrals

Customer acquisition costs range wildly from one company to the next, but everyone understands that once a company has acquired customers, the key to maximizing revenue is keeping them.

It is 7 to 11 times cheaper to keep a current customer than to add a new one.
A Xerox study showed that their totally satisfied customers were 7 times more likely to make additional Xerox purchases in the subsequent 29 months than the merely satisfied.
Companies can increase profits by almost 100% if 6% more of their customers were retained.
Estimates show up to 91–96% of a brand’s profits come from loyal customers.
A study by McKinsey & Co. calculates that an 11% increase in repeat customers translates to a 10.6% increase in company value.
Bain & Co./Mainspring research shows that online grocers must keep customers for 29 months just to break even ^[1].

The preceding are potentially frightening data to e-business, which lives, or dies, in a medium where jumping from one Web site to another, changing brands and loyalties, is easier and faster than ever. In the realm of e-business, high rates of retention are imperative for success and even survival.

Loyal customers are the best customers. People who are committed to Buick and who will not buy a car from any other manufacturer are the ideal consumers for Buick. They do not require further acquisition expenses, they will buy Buick cars for their children and recommend Buick to their friends, and they are statistically much more likely to buy up, getting newer models loaded with optional equipment. The recent boom in online loyalty reward programs demonstrates that e-business understands the lifetime value of loyal customers and is starting to shift resources to retention efforts. Many of these incentives are financial, offering repeat buyers the opportunity to earn points that can be redeemed for goods or services. Although low prices and points programs are a strong draw initially for consumers, e-consumers will, as in traditional business, grant their loyalties ultimately to those businesses that offer them the best experience, of which price is just one of several considerations. Low prices are the carrot on the stick for acquisition, but user experience and customer service are the tools of retention.

Of special interest to e-business are customers gained through referrals from existing customers, as well as customers lost due to negative reactions about a particular Web site. According to a recent Bain & Co./Mainspring survey, online apparel customers referred 4 people after the initial purchase and 8 people after 11 purchases. The global reach of the Internet becomes a handicap when a consumer brings up a list of dozens of online retailers in a given industry. E-business consumers are generally anxious for referrals from people they trust to help guide them through the ever-growing sea of Web sites.

Standard barriers to following through on a referral are absent in e-business. If a friend recommends a music store that is 45 minutes away, you might decide not to go because of the distance. Even a local store may not tempt you if you know that the parking is a nightmare or if the skies just dropped two feet of snow outside your window. When a friend recommends a Web site, you get cozy at your desk and go there.

Consumer trust, discussed earlier, is a unique challenge facing e-business. Going to a brick-and-mortar store lends a sense of confidence and implicit trust that has to be earned in other ways in the context of the Internet and of doing business through a computer screen. A referral from a trusted friend or colleague is invaluable to establishing a relationship between consumers and e-businesses.

Referrals also provide an exception to the high cost of acquiring new customers. Every customer who is referred to a company is “free,” or is at least a significant offset to the marketing and sales budgets for customer acquisition. Though somewhat more difficult to measure, word-of-mouth advertising is extremely important and can have a remarkable impact on a company’s bottom line.

Poor Performance and Failure

E-businesses tread a thinner line than traditional businesses in efforts to attract and keep consumers. Someone who drives to a store will extend greater latitude to that shop (in terms of what the consumer likes or dislikes about the store, its selection, its layout, its service) than to a Web site. Online consumers expect speed, reliability, and broad selection. When they do not get it, they leave. All it takes to leave is typing a new Web address or following a link. For e-business, there is no dress rehearsal and often no second chance.

Internet users are increasingly barraged by new sites, new services, all competing for their eyes and their dollars. When consumers find a site they like, they add a bookmark and stop hunting. And when a site does not satisfy consumers, they don’t return and they tell their friends not to go.

At issue for consumers is the tension between knowing they have more control with e-business and feeling overwhelmed by the choices, and this tension can spell disaster for an e-business that does not adequately mind its store. Often a single negative experience for a consumer means he or she will not return to that site to give that company another chance. If someone tries to buy a puzzle online and the transaction fails, there are enough other online toy retailers that this consumer need never return to the one that failed. A recent study of online shopping by the Boston Consulting Group for a 12-month period reveals unsettling statistics for e-commerce companies battling to attract and keep consumers.

Consumers who are satisfied with their first-time online purchase spent, on average, $600 in 13 transactions; dissatisfied first-time purchasers spent $250 in 5 transactions.
Five out of six e-consumers experienced a failed purchase; 29% of all online purchases failed.
Twenty-four percent of online shoppers who experienced a failure stopped shopping at that site; 7% also stopped shopping at that company’s brick-and-mortar store^[1].

In e-business, there are no humans to counter a negative experience. A failed transaction or a site crash is extremely difficult to qualify or explain online, leaving the consumer alone at the computer to decide if it makes more sense to try again or go elsewhere. The message is clear for any company that wants to succeed in the Internet economy: make sure the site works extremely well, and when something goes wrong, which it inevitably will, find out about it and fix it fast. When a popular Web service had a nearly-24-hour outage, the company’s CEO recognized that such an event could be disastrous, even fatal, for the company, and she or he effectively lived in the IT operations center during the crisis and the following weeks.

The new and rapidly expanding business of online securities trading offers a vivid example of the best and the worst for e-businesses. Online trading has offered unprecedented access for thousands of users to securities markets. The reach of brokerage houses has extended into demographic sectors that previously had neither the time for nor the access to securities trading, while securities markets have extended their hours, with talk of 24-hour trading on the horizon. Thousands of consumers place millions of trades at relatively low commission, filling the coffers of online trading firms.

Moving the apparatus for trading to the desktop, however, has resulted in a wealth of information passing to the customer, with a corresponding shift in power away from the brokerage company. With the Internet, customers are more aware of stock prices, of transactions, and of failures. When a glitch prevents online traders from selling stock or canceling orders when the price falls, those traders lose money and can very accurately identify how much they have lost.

Most of the leading Internet brokerages have suffered outages, ranging from a few minutes to several hours, and the costs to these businesses go far beyond the defection of angry customers. Online brokerages are having to compensate customers for losses suffered when trades could not be executed because of outages, and these payments are stretching into the millions of dollars for each of several leading online brokerages. Not only does an outage scare off otherwise potentially loyal customers, it forces the brokerage to write checks to unhappy customers on their way out the door.

A final significant problem facing e-businesses (at least those that are publicly traded) is the response on Wall Street to reports of prolonged service failures or customer dissatisfaction. In a market where a company that reports earnings slightly below projections can see the price of its stock tumble, word of a serious disruption of service can be crushing as investors (many of them trading online) flee and unload their stock in that company.

The price paid by e-business (in lost revenue from dissatisfied customers as well as payments made for consumer losses) from inadequate performance and significant site outages is potentially crippling, especially for pure-play Internet companies that have no other customer base or business medium to depend on. No Web site is perfect, however, and glitches are a reality in any online application. The key for e-business is to establish performance benchmarks to attract and keep customers and to minimize technical problems that make sites unavailable or prevent them from meeting necessary standards. No e-business will be successful without adequate and appropriate tools to monitor performance of its Web site and alert site operators immediately about slowdowns and failures of service.

Ensuring the Customer Experience

Given the economic repercussions of a company’s inability to build and retain a base of satisfied, loyal customers, the need for effective site-monitoring applications is paramount, and a site monitor must be sophisticated enough to measure more than uptime. According to Forrester Research, only 27% of site managers look beyond uptime to specific network performance standards, and even fewer monitor transaction success rates. It is these more complex data, however (not simply whether a page is available) that give important insight into the user experience and associated rates of retention and referral.

Service-level agreements (SLAs) that provide real value stipulate more than simply what percent of time a site will be up, and monitoring applications gives internal operators and hosting facilities the tools they need to measure other important parameters. Identifying whether a slowdown is from an application failure or from a network bottleneck is advantageous to IT personnel trying to fix the problem. Additionally, effective use of monitoring software can identify not only real-time glitches, but also design shortcomings. Thorough reports from monitors might show, for example, a system weakness that is responsible for transactional failures. The more quickly and accurately a problem and its cause are identified, the faster it can be fixed.

Monitoring software also gives companies the data they need to make projections about future site usage and the improvements required to accommodate increased activity. Successful e-businesses can see their usage double in as little as three to six months. Understanding growth and anticipating future needs can mean the difference between recognizing the need and getting that extra server now, or waiting until increased traffic crashes the system.

Features and services like these (what Forrester Research calls “Transaction Management Services”) are provided through effective, sophisticated monitoring software. It is this integrated Web quality monitoring that Forrester sees as the next step to managing the total quality of Web-based business. If, as they predict, e-commerce reaches global hypergrowth by 2003, it will be those companies with effective monitoring systems already in place that are able to survive and succeed.

With the preceding in mind, how do industry-leading executives perceive the use of e-commerce technology in their companies? What are the business benefits provided by transaction management systems? Should your company build and maintain its own transaction management system, or buy electronic trading network services? This next part of the chapter answers these questions and further discusses the costs, benefits, and perceptions of technologies that enable interenterprise information exchange, or what is described as the transaction management market (TMM).