The Internet has had the same kind of effect on business as the advent of universal telephone service. It has sped up the business cycle, allowed new kinds of transactions to occur, and changed expectations among people trying to make deals. Several organizations and professionals are studying this frenzy of web-based activity, trying to spot important trends and draw useful conclusions.
Among them is Wharton marketing professor David J. Reibstein. He says that most of today’s e-commerce transactions are of a business-to-business nature, and they are "taking place between previously existing vendors and customers." But in some ways, though its volume is smaller, the consumer activity segment is more interesting, because it is based largely on new relationships between buyers and sellers. Market data is also easier to come by.
In a chapter he is writing for a book titled Digital Marketing, edited by Jerry Wind and Vijay Mahajan, Reibstein, using data assembled by BizRate.com, has examined the characteristics of both the consumers and vendors who are heating up Internet commerce, and what brings them together. The data were collected through a point-of-sale survey posted at some 1,400 retail e-commerce sites. Follow-up questionnaires were e-mailed to willing buyers shortly after their expected product delivery date. Participating e-commerce sites included 1-800-FLOWERS, Audio Book Club, eToys, Music Boulevard and Virtual Vineyards.
The major product categories represented in the study included apparel, computer goods, consumer goods, entertainment, food and wine, gifts and home and garden products. All these products have experienced sharp increases in both the value of sales over the last year and the number of orders placed. The study period covered 12 months ending March 1999.
According to Reibstein, e-buyers can be grouped into categories: First-time web buyers, those for whom this was the first web purchase; first-time merchant buyers, or respondents buying from a particular vendor for the first time; and repeat merchant buyers, who indicated that the current transaction was not their first at a given merchant’s site.
The data show that the volume of purchases by first-time web buyers grew faster than for the other, more experienced buyer categories. Interestingly, volume growth for first-time merchant buyers has grown much faster than for repeat merchant buyers. By the end of March 1999, the dollar sales volume for first-time merchant buyers was nearly 50% greater than for repeat merchant buyers. Reibstein says, "This may indicate the need for improving customer loyalty."
The BizRate.com data show that e-customers offer an evolving profile. "The average Internet customer in the first quarter of 1999 was older, richer, and more educated than many might suspect," Reibstein says. However, the data also show the average age of customers (41 years old), reported household income ($75,046) and educational level appears to be lower among first-time Web buyers. This may reflect, Reibstein suggests, increased familiarity with and access to computers and the Internet.
How do these buyers get to a particular merchant’s site? More than 50% of respondents claimed the Web as their referral source, with 18.5% of those responding to e-mails. AOL was a major referral source.
The second largest driver of purchases (30%) was referral by a friend or word of mouth. Nearly one-third of these non-web referrals came from prior off-line experience with the merchant, especially among repeat merchant buyers. This gives credence to the claims of traditional retailers like Toys ‘R Us that they can become major e-commerce forces despite coming late to the game.
A smaller fraction of respondents, nearly 15%, credited print media as their primary referral source.
Merchants’ tactics made a difference once the consumer reached the web site. Most effective, according to Reibstein, were product search tools and express ordering. These convenience-related tactics were more important to the average buyer than offering featured sale items, discounted shipping and on-line coupons.
The BizRate.com study also examined the attributes of merchants’ web sites to determine what characteristics were essential in attracting and retaining e-customers. On a 10-point scale the highest rated item was product representation, surpassing even product pricing. Says Reibstein: "The biggest concern is that what is represented on the web is consistent with what is actually received." Wide product selection was the No. 3 on the list.
It is important to note that not all age and income groups ranked these factors the same. While the older age and higher income groups downplayed price, it was the most important factor for groups including teens and young adults. Gift buyers, on the other hand, cared most about being assured that they knew what they were ordering and that it would be delivered on time. Reibstein says this shows it is very important for merchants to know their target market and focus on satisfying its demands.
The question of what brings a customer back is very important to e-tailers. First-time buyers are expensive to attract, and many sites operate at losses as they slash prices and advertise widely to these customers. But repeat customers may be more valuable. Reibstein observes that while almost half of total e-commerce revenue in the in first quarter of 1999 was generated from first-time merchant buyers, repeat merchant buyers generated nearly 75% higher growth.
These buyers must be satisfied if a merchant is going to accumulate high value customers. Factors driving them back to a merchant were the level and quality of customer support and on-time delivery. The catch is that a major factor driving a customer to make the first purchase is price, so e-commerce winners must find a way to make money while balancing the first-timers’ demands for competitive prices against the costs of providing the customer support demanded by repeat buyers. The winners are likely to be those who "deliver at a level that the customer wants. . .and monitor how well they are doing," he concludes.