Why shifting business models harm online loyalty

WM Circle Logo

By: Wise Marketer Staff |

Posted on February 22, 2005

For the first time in the history of the University of Michigan's American Customer Satisfaction Index (ACSI), the e-commerce category has declined rather than improving, in terms of overall customer satisfaction. The likes of Amazon and eBay have both dropped several index points this quarter - but why?

According to the latest index, Amazon and eBay - which are usually the finest examples of true satisfaction for the category - both dropped four points this quarter, suggesting that e-commerce is perhaps becoming a little less thrilling to consumers, driven by the fact that online business models are a little less unique and pure than they used to be. A separate study showed that consumers tend to prefer to browse online and shop offline - another significant factor in the current state of e-commerce.

While Amazon and eBay have both been evolving their business models (and apparently losing some goodwill in the process), BarnesAndNoble.com has maintained a purer approach in the short term, allowing it to push ahead to lead the pack of online sellers of goods and services.

E-tailers suffer
The new ACSI results, compiled in partnership with ForeSee Results, also showed that satisfaction with e-retail (one of the four measured ecommerce sub-sets) fell by 4.8% this year, dropping for the first time since the category was included in the ACSI in 2000. With an aggregate score of 80 on the ACSI's 100-point scale, e-retail still performed substantially better than offline retail, which was down 3.2% from 2004 with a score of 72.6. Meanwhile the online brokerage and travel industries (which had never delivered an online experience that delighted customers like e-retail) experienced further declines in satisfaction.

The index measures select top companies by name, and also collects broader samples that provide hard data on the state of e-commerce in general and the e-retail, online auctions, online brokerage, and e-travel categories in particular. Overall, the e-commerce category was down 2.7% from 2003, with a score of 78.6.

Shifting models
"E-retail is undergoing a fundamental shift as some of the industry heavyweights move away from their core focus," said ForeSee Results' CEO, Larry Freed. "Some of the best-known brands are changing business models and changing their relationships with their customers. It's tough to do that without eroding satisfaction."

According to Freed, as successful e-retailers expand their focus, they find themselves with a broader pool of customers to serve -  and all with different expectations. The study found that while the e-tail leaders are still doing well, they must also keep a keen eye on the integrity of their brands as their business models and audiences shift.

Brand dilution
"It's impressive that Amazon kept its satisfaction scores up as long as it did, despite making significant changes to its business model and product selection," added Freed. "Amazon used to excite people when it was a pure bookseller and music seller. Now it has a wide product range, including more complex and sophisticated products such as electronics and apparel, and it serves as a shopping aggregator for multiple vendors. That approach dilutes the brand, can confuse people, and requires a more demanding level of customer support."

Freed said that eBay's decline in customer satisfaction is also likely to have been driven by changes in its business model. "eBay is becoming less a community of individual buyers and sellers and more a retail aggregator of small businesses," he explained. "That may not only deflate some of the excitement and loyalty, but it also puts eBay into more direct competition with Amazon and Overstock.com, which have recently added auction features. So many of these sites are, to one degree or another, changing in the same direction - the lines between them are blurring." However, eBay (which was evaluated in the online auctions category) still has a considerable lead over its nearest rival.

Increasing competition
The diversification of sites such as Amazon also puts them into increasing competition with traditional retailers, who operate both online and offline. A recent ForeSee Results/FGI Research survey of more than 4,000 multi-channel shoppers showed a distinct preference for being able to research online but then purchase offline for products such as apparel and electronics.

The ACSI is a quarterly indicator of customer evaluations of the quality of products and services available to household consumers in the USA. It is produced by the University of Michigan's Ross School of Business, and the e-commerce portion is conducted in partnership with ForeSee Results. The ACSI surveys online shoppers and uses a formula that weights various aspects of their experience according to what most influences customer satisfaction and behaviour. That formula leads to the ACSI index score, which can then be compared against any industry, service, or company measured by the index.

For additional information:
·  Visit the ACSI at http://www.theacsi.org
·  Visit ForeSee Results at http://www.foreseeresults.com