Net Satisfaction on The Rise
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Despite the economic storm clouds gathering, Internet entrepreneurs can take comfort in a new study reporting that customer satisfaction with e-commerce is at an all-time high.
Other sectors of the economy can find no such solace, as the University of Michigan reported today that the American Customer Satisfaction Index (ACSI) has otherwise declined across the board. E-commerce proved the lone exception.
[cob:Related_Articles]"Against a backdrop of weakening consumer spending and talk about recession, e-commerce will continue to be a bright spot for multichannel companies," wrote Larry Freed, president and CEO of ForeSee Results, a research firm that jointly authored the study with Michigan.
"Companies have to excel in their online channel: Survival in this economy depends on customer satisfaction, because switching costs are low and an alternative is just a mouse click away," he wrote.
On the 100-point ACSI scale, e-commerce -- which includes online retail, brokerage services and travel sites -- scored 81.6 for 2007, up 1.6 points from the previous year.
In contrast, the national ACSI, which looks at more than 200 companies across more than 40 industries, appears to be trending down in recent quarters. The national index was 74.9 in the final quarter of 2007, a drop of 0.3 points from the third quarter. It also failed to show growth in a year-to-year comparison, holding steady at 74.9.
The ACSI methodology quantifies different measures of customer satisfaction, such as value and product quality, giving each a weighted value to arrive at a composite score. According to the study, that score reflects both overall satisfaction and the likelihood of repeat purchases.
Within the e-commerce category, customer satisfaction in online retail held steady from last year; satisfaction increased in online brokerages, but fell off with online travel sites.
Amazon was the clear winner within the online retail sector, scoring 88, the second-highest score of all companies measured. (Heinz was No. 1, with a score of 90.)
Two recent additions to the survey, Netflix and Newegg (a Web-only outfit selling consumer electronics, computer hardware and software), posted strong debut scores of 87 and 84, respectively.
This year, the researchers dropped online auctions as a separate category, ranking eBay alongside more conventional retail operations. eBay received an ACSI rating of 81 -- toward the low end of the online retail category, and well behind Amazon.
Macroeconomic worries aside, Freed is optimistic about the outlook for online retailers, and for offline sellers moving to the Web.
The study didn't single out any sectors as lagging in migrating to the Internet. Even categories like apparel, jewelry and cars -- items that people generally like to see in person before buying -- are becoming vibrant parts of the Internet economy, the findings concluded.
"Web sites are continuing to innovate," Freed told InternetNews.com. "They're closing the gap between the offline experience and the online."
According to Freed, Web sites are generally doing a better job of graphically representing merchandise with high-quality images and the ability to zoom in and examine a product from all sides.
[cob:Special_Report]Additionally, more online retailers are addressing shopper confidence by posting consumer-generated reviews and improving their return policies, he said.
Online travel has not fared quite as well. The only segment of the e-commerce category where consumer satisfaction declined, the ACSI rating for online travel sites dropped 1.3 points.
"The value model they hung their hat on was a great one three or four years ago," Freed said, referring to sites like Travelocity, Expedia and Orbitz.
Since then, airlines have increasingly tried to break the business model of those travel aggregators by guaranteeing that the cheapest ticket prices will be found on their own Web sites, he said.
Also, sites like Travelocity are struggling when they try to extend themselves into handling customer service. Those sites are the middlemen, so when travelers need to work out an itinerary problem, most go directly to the airline, Freed said.
However, the aggregators often still "bear the brunt of consumers' ire," he added.
The "big three" travel aggregators are also getting squeezed by travel-focused search engines like Kayak, which facilitates transactions directly with the airlines.
Buffeted by streamlined upstarts like Kayak, and by the travel providers themselves, aggregators will have to make significant adjustments to their business models to "stave off marginalization," Freed said.
Online brokerage houses face no such danger. "Customers are getting more comfortable with doing financial transactions online," Freed said, noting that Fidelity was a particular standout.
"Fidelity's done a phenomenal job," of incrementally adapting to customers' needs, he said. "They've done a lot of evolution, not revolution."
The 2007 ACSI score for financial services increased 1.3 points from the previous year. Fidelity jumped 5 percent; Charles Schwab increased 2.5 percent and TD Ameritrade was up 3.9 percent.
Etrade was the only loser among online brokers, with its ACSI score dipping 1.4 percent. In part, its relatively poor score could be a reflection of its online-only presence, while the other three have established reputations as venerable offline investment houses.
"The rise in the online brokerage industry again defies conventional wisdom," Freed wrote. "Satisfaction with investing in general is expected to dip in a difficult economy. But three of the four measured online brokerage firms post very strong scores."
In his bullishness about the e-commerce economy, Freed dismissed the notion that security concerns are impeding the industry's growth.
Echoing security experts, Freed pointed out that online transactions generally carry lower risk than credit card purchases made in stores, and suggested that it's only a matter of time before more American consumers are disabused of their e-commerce security worries.