Online Retailers Aren't Meeting Customer Demand, Report Finds

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Most online retailers are unable to meet consumer demand, decreasing their chances of reaching profitability, according to a report issued yesterday by The Boston Consulting Group.


The report, "Winning the Online Consumer 2.0: Converting Traffic into Profitable Relationships," said reaching profitability means satisfying the consumer at each stage of the buying process.


Conversion rates, number of unique visitors, proportion of repeat customers, orders per customer and ratio of repeat order revenue to first-time order revenue need to be addressed in tandem, according to the study. A gradual strategy will not have a strong enough impact on the bottom line, the study said.


"Converting traffic into profitable customer relationships is a challenge few online retailers have mastered," said Peter Stanger, vice president and leader of BCG's Business-to-Consumer Topic Area in North America.


Stanger said a business model that requires a merchant to spend $100 to acquire a customer who places a one-time order of $50 is headed for failure.


"Online retailers need to tailor their offerings for the high-value customer segment and cement loyal relationships with those customers by delivering a flawless customer experience," he said.


By the end of 2000, online buying in the United States reached 68 million customers. Eleven percent said they ordered and paid for a product online but never received it, doubling the previous year's rate. Forty-one percent of consumers who experienced a buying failure said they stopped shopping at the Web site in question.


"Making money means retaining customers, increasing their frequency of orders and ultimately reducing pure marketing costs," said Michael Silverstein, senior vice president and global leader of BCG's Consumer Practice. "The technical elements of a superior shopping experience can be delivered."


The study found that 31 percent of consumers surveyed were satisfied with their ordering experiences within the health-and-beauty categories. The leisure travel and computer hardware categories nabbed the lowest numbers in customer satisfaction at only 20 percent.


Results in the report were taken from a survey of 2,876 U.S. Internet buyers conducted during fourth quarter 2000.


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