• December 19, 2006
  • By Coreen Bailor, (former) Associate Editor, CRM Magazine

Online Retailers Get Synched With Loyalty

For online retailers that fail to meet customer expectations, the reality is that their customers' alternatives are merely a click away. That makes strengthening customer loyalty an essential component of their success, and more online vendors appear to be catching on: According to Walker Information's "The 2006 Walker Loyalty Report for Online Retail," 46 percent of online shoppers are deemed truly loyal, one of the strongest loyalty marks ever tallied in a Walker Loyalty Report. The report is based on findings from the more than 4,800 Web site evaluations completed by about 3,000 online panel members (respondents were 18 years and older who made online purchases within the past three months). Walker did, however, find that 39 percent of respondents feel trapped--that is, they intend to keep buying, but don't have a strong attachment or commitment to the retailer. "There was a high percentage of trapped customers, which means there are opportunities for those companies," says Leslie Clark, Walker's senior director of marketing. Fifteen percent of customers are considered high-risk (those who have a low commitment to the retailer and a low intention of furthering the relationship). Just 1 percent of respondents fall under the accessible set--customers who are loyal, but may switch for reasons that are not tied to the retailer's performance. Walker fragments companies into three categories: loyalty leaders, loyalty limbo, and loyalty laggards. Walker defines loyalty leaders as companies that have earned high percentages of truly loyal customers and relatively low percentages of high-risk customers. Loyalty limbo companies are those with poor scores for truly loyal customers or high-risk customers, but not both, and loyalty laggards are companies with low percentages of truly loyal customers and high percentages of high-risk customers. Eight companies have secured the distinction of loyalty leader: Amazon.com, eBay, iTunes, Lands' End, L.L. Bean, QVC, Victoria's Secret, and Walgreen's. Just two leaders--Victoria's Secret and Walgreen's-- do not sell their products solely on the Web or through catalogs. Walker does not publicly identify loyalty laggards or companies in loyalty limbo. Leaders have "online environments that tend to be described as dependable, welcoming, fun, and friendly," says Brad Linville, senior vice president of consulting services at Walker. He notes that they outperformed the laggards in several categories including purchase/checkout, payment options, item delivery, and post-sale customer support. But "in the shipping costs and return areas the laggards are actually outperforming the leaders," Linville says. "So is that an area for the leaders to focus on? Data would indicate yes, it's something they should be considering. Are they areas that have the most impact on loyalty? No. That needs to be considered as well." When evaluated by Web site capabilities and features, though, the leaders performed better than the laggards in every area, including look and feel, ease of use, display/description of items, trusted and safe, response time/speed of site, uniqueness of items, recommendations/reviews, and personalization. Additional findings indicate that 91 percent of loyalty leaders' customers are likely to continue purchasing from them, compared to 78 percent of the loyalty laggards' customers, according to the report. Eighty-five percent of the leaders' customers are likely to recommend the retailers, compared to 75 percent for the laggards. The financial implications of loyalty are clear. Loyalty leaders (14 percent) outpaced loyalty laggards (3 percent) in three-year average operating margin by 11 percentage points. Similarly, in terms of three-year average operating margins, leaders (146 percent) faired better than their laggard counterparts (127 percent). But the most striking performance difference lies in three-year average operating income growth: Leaders (309 percent) outperformed laggards (-373 percent) by a substantial difference of 682 percent. "That net is almost a 700 percent difference in terms of the growth metric and how that translates to business success among the leaders versus the laggards," Linville says. Related articles: E-Retailers' Money Monday
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