Loyalty Is the Final E-Commerce Hurdle

Now that retail e-commerce is leaving the realm of novelty and moving fully into the mainstream economy, customer loyalty stands as a lingering hurdle between e-tailers and profits.

Customer service improvements and heightened security have counteracted a good deal of consumer resistance to Web shopping. These improvements, however, will be meaningless if e-tailers cannot hold a customer without giving a profit-busting discount.

During the holiday buying spree, e-tailers flooded traditional media with heavy advertising dollars, enticing consumers to come and shop. Once at the Web sites, consumers found an array of freebies, from free shopping and gift wrapping to free drawings and spectacular discounts.

According to plan, the visitors came and the visitors bought. E-tailers bragged about record sales that ranged from 20 percent over the previous year to 800 percent higher.

Still, at the end of the day, e-tailers found themselves trying to put a good spin on their fourth-quarter losses.

What If Discounts Are Dropped?

According to Forrester Research analysts, Web travelers rely on convenience, abundant sources and low prices found online, and are willing to research multiple sites for the best deals. Jupiter Communications rings the same bell, suggesting that e-tailers need to drop the discounts and figure out a pricing structure that holds customers without profit-killing giveaways.

“Merchants that hope to operate profitably in the long run must strive to understand their customers’ price threshold by engaging in a process of continuous price testing and evaluation,” said Ken Cassar, an analyst with Jupiter’s Digital Commerce Strategies research practice.

Flipping the Loyalty Switch

The industry talked up personalization as the breakthrough loyalty tool in 1999. But when every site has its personalization tools sharpened, where is the loyalty hook? Amazon.com displayed the power of customer service excellence and came away from e-holiday 1999 with high marks — and higher losses.

Traditional Business Models

The 1999 e-commerce experience begs the following question: If you trim your discounts and support system, can you still keep your customers? One false move — as in the case of Toys “R” Us — and you become a well-publicized laughing stock and class action lawsuit target.

In all the euphoria over the new economy, it has become easy to forget that some traditional business models still rule, simply because they are rooted in an understanding of human behavior.

Let’s face it. Discounts risk devaluing products, while adding value enhances them. Perhaps it is time for e-tailers to ease up on the giveaways and enhance the shopping experience.