The Idea in Brief
Think that price rules the Web? It doesn’t. Long-term e-commerce profit hinges on customer loyalty. And customer loyalty rests on the traditional twin pillars of superior customer experiences and repeat purchases by your most profitable buyers.
These two pillars must be even stronger to support e-businesses. Why? Consider this: The average Web site achieves only 30% of its sales potential. Most e-businesses spend gobs of money building sites and attracting thousands, millions, of visitors. But the majority of those “eyeballs” don’t come back often enough for companies to recoup investments. In fact, over 50% of customers stop visiting completely before their third anniversary.
But here’s the good news: By retaining a mere 5% more customers, e-companies can boost profits by 25–95%—through the simple economics of loyalty. Acquiring e-customers is so expensive (20–30% higher than traditional businesses) that those customers remain unprofitable for at least two to three years. But if you can keep them loyal, their profitability accelerates much faster than in traditional businesses. It costs you less and less to service them. And they buy more and more.
Customers are especially grateful to find a trustworthy site in the bewildering vastness of the Internet. Not only do they “stick” to those companies, they also tell their colleagues and friends about them. And because “word of mouse” spreads faster than “word of mouth,” these referrals draw hoards of new customers—at no additional cost.
The Idea in Practice
How can you secure your e-customers’ loyalty?
- Don’t try to be all things to all people. The Web offers such easy access, you may be tempted to romance as many potential buyers as possible. But to accommodate everyone (e.g., all technical-expertises, brand, and price preferences), you must constantly add features and functions—making your site slow and confusing. Instead, help your best customers focus.
Example:
Industrial-supply house W.W. Grainger’s Web site offers a potentially confusing 250,000 products. But initial discussions with sales reps, high-speed searches, and customer-specific, on-line pricing simplify and personalize shopping—keeping customers coming back for more, for years.
- Learn about customer loyalty. The Internet gives you unprecedented knowledge about your customers. You can see their shopping and purchasing patterns—click by click.
You can then customize your offerings to meet their preferences—and win their devotion. Example:
By analyzing its customers’ behavior, America Online found that customers are more likely to maintain their accounts when AOL becomes part of their daily routine. The company designed software upgrades featuring enhanced calendar and scheduling functions—tying customers even more strongly to AOL.
- Integrate your Web site with all your operations to create a seamless, high-quality customer experience.
Example:
Home Depot’s Web site and physical store are totally integrated. Contractors—the company’s best customers—check the site to see if their orders are ready for store pickup, saving time and aggravation, and increasing their buying.
Loyalty may not be the first idea that pops into your head when you think about electronic commerce. After all, what relevance could such a quaint, old-fashioned notion hold for a world in which customers defect at the click of a mouse and impersonal shopping bots scour databases for ever better deals? What good is a small-town virtue amid the faceless anonymity of the Internet’s global marketplace? Loyalty must be on a fast track toward extinction, right?
