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.
Another big-name Web retailer that will soon introduce personalized shopping is BlueLight.com LLC in San Francisco. The online division of Troy, Mich.-based Kmart Corp. is currently working with San Mateo, Calif.-based E.piphany Inc. to produce by early summer a personal shopping experience that's intended to present customers with the items they're most likely to shop for, based on their past shopping patterns, says BlueLight.com spokesman David Karraker.
However, BlueLight has taken the idea of personalization one step further through a detailed understanding of which customers are buying online.
"Last year, it was Internet America going online," says Karraker. "This year, you see Middle America coming online and gravitating toward known brands."
Other incentives designed to keep people coming back to BlueLight's Web site include first-time buyer discounts, free shipping and shipping upgrades, and a rewards program. BlueLight.com has also taken Kmart's traditional "blue-light special" and moved it online. Today, the virtual blue-light special pops up on shoppers' computer screens at random times and is "just like the blue-light specials you see at Kmart," says Karraker.
As a result of these and other initiatives to lure shoppers to the site, traffic at BlueLight.com has increased a staggering 823 percent since early November, according to Karraker. And the company has reported that sales for early November through December were up 1,060 percent, compared with the same period in 1999.
Companies like BlueLight.com have also benefitted from customer experience enhancements like imaging technology. BlueLight, for example, has used Atlanta-based Iterated Systems Inc.'s MediaBin software to put thousands of product images up on its Web site every week to help customers get a better feel for what they're buying.
"No one has figured out the magic potion to keep people happy online," says Burt Smith, vice president of marketing at Iterated Systems.
"The images that are used help the buying decision," he notes. "It's a visual experience more than a brand experience."
Right at Home
Another company that has taken "the right way" toward trying to convert online visitors into customers, according to Rebecca Nidositko, an analyst at The Yankee Group, is Bellacor.com Inc., an online home furnishings company in Saint Paul, Minn. The company's strengths lie with its product specialists, who have experience in the home furnishing market and deep knowledge of its products, she says.
To date, the company has rivaled the likes of Walmart.com with a customer conversion rate of more than 4 percent, giving the company "long-term prospects for success," Nidositko says.
"Not all customers are created equally," says Jan Andersen, Bellacor's president and CEO.
"The key is to give people something compelling. We have integrated real people into the selling process," Andersen says, referring to the company's product specialists, who can walk customers through the buying process. "They become, in effect, your personal buying consultant."
Even more important than the impact on conversion rates, however, is the effect Bellacor's business model has on the bottom line, according to Andersen.
The personal shoppers are "able to up-sell the customer," he says. "Not only do we increase conversion rates, but we double the [sales] ticket."
The key to turning Web visitors into loyal customers, therefore, is the integration of real people into the selling process, Andersen says.
"With automation, you can buy or not buy," he says. "In our case, there's an in-between. We haven't thrown everything out with the bath water."