February 05, 2001, 1:40 PM — The prevailing wisdom in online retailing used to be, "Build a Web site, and they will come." For the most part, it worked out that way. People came in droves, sending the stock valuations of online retailers soaring.
That was then. Today, those online retailers are learning a valuable lesson that could mean the difference between staying online and going out of business: Customer churn hurts the bottom line.
The harsh reality for online retailers is that while people do indeed shop at popular retail Web sites, many do so once and rarely, if ever, come back.
In fact, the vast majority of online customer conversion rates continue to hover around 1 percent to 2 percent, according to Paul Ritter, an analyst at The Yankee Group Inc. in Boston. Many retail Web sites, it seems, just aren't "sticky" enough to keep a lot of shoppers coming back.
Customer churn is "the mass abandonment of customers who are not converting to buyers," explains David Daniels, an analyst at Jupiter Research in New York.
Churn is about customer retention, says Nina Abdelmessih, a manager at the The Boston Consulting Group Inc. in Boston. It refers to "the ability to attract and retain consumers, from the first-time purchase through their entire life online," she says.
But how does a Web site accomplish that?
One of the most popular and effective ways to reduce customer churn is to introduce personalized shopping experiences, according to analysts and experts.
"The big play is for sites to try to personalize the customer's experience," says Daniels. "Tailoring the product selection to the consumer is the most critical factor that consumers mention when they select an online store."
Lands' End Inc. is a prime example of the move toward personalization, says Barrett LaMothe Ladd, an analyst at Gomez Advisors Inc. in Waltham, Mass. Last month, the Dodgeville, Wis.-based company introduced its Personal Shopper function to its Web site, which makes recommendations to clothes shoppers based on their preferences.
"Personalization is the name of the Internet game," wrote Ladd in a recent study of the Lands' End initiative. "It can improve conversion rates, as it shows relevant items to a consumer. It is also a useful tool for up-sell and cross-sell opportunities."
These tools seem to be helping Lands' End's e-commerce business, which converted 11.8 percent of Web site visitors into online customers in December during the peak of the holiday shopping season, says Ritter.