Don't Expect A Merry E-Christmas Online buyers expect freebies, lack loyalty, and purchase on price, says an e-commerce pro. Shopping sites need to retrain them. Fast.
By Daniel Roth; Laurie Windham

(FORTUNE Magazine) – E-commerce is no longer in its infancy, yet it seems that few retailers have figured out how to successfully sell on the Web. Some observers blame that on management, infrastructure, or job-hopping employees. Laurie Windham blames it on the consumer.

Windham is the CEO of Cognitiative, a consulting firm out of San Francisco. She has spent the past few years surveying thousands of consumers about their buying habits (or lack thereof) on the Web. In her recent book, The Soul of the New Consumer (Allworth Press), Windham argues that Net buyers are a different breed from the mall walkers and catalog shoppers. She lays out a scary picture of Internet retailing, in which dot-coms have ruined their own chances to sell by spoiling their customers. Net consumers have learned to expect freebies and cheap products when they shop; when they don't get them, they move on. "In the fickle world of e-commerce," writes Windham, "customer loyalty is an ephemeral and elusive concept." She recently talked with FORTUNE's Daniel Roth about the differences between Net and real-world consumers, and about the future of e-commerce.

It seems as if everyone has shopped on the Web by now. Is there really still that big of a difference between online and offline shoppers?

Probably about half of the U.S. population now has access to the Web at home. And a large percentage of those people have shopped online. But there still is a significant part of the population--the other half--who are not online yet. And according to the research that we've done, about half of that half will come online sometime between now and the next year and a half. There are some significant differences in the people who are online today and the ones who aren't.

For instance?

Something like 34% of the people we talked to who are Web shoppers described themselves as comparison shoppers, whereas only 8% of the people who don't use the Web described themselves as that. It's an interesting personality characteristic that the people who've been driven to use the Web so far have this little thing in their personality where they like to compare. They like that choice. They're adventuresome. They're experimental. And they like to shop. The non-Web user really isn't into it that much. Only 1% of the people who were Web shoppers said they hated going to stores, whereas 10% of the non-Web shoppers said that about themselves. That's not a massive difference, but it's directional. I thought intuitively that the Web shopper would say, "I hate going to stores. That's why I like shopping online." In fact, it's the non-Web user who doesn't like shopping at all. They don't like shopping in stores. They don't like shopping online. You know, they're just not into it.

You say that customers might not necessarily be loyal to an entire site but only one part. What does that mean for latter-day malls like Amazon?

You're referencing a part of the book where I'm talking about how there are some shoppers who care more about price than anything. And there are other ones that care more about time savings and convenience than anything. So if Amazon doesn't deliver a great product selection at a very competitive price in other product categories, it's going to lose that customer. The loyalty to Amazon among those types of customers doesn't exist, because that customer is loyal to low price. And that's a very tough thing to compete with on a day-to-day basis.

Is that the major segment of Web buyers?

The biggest segments are price-sensitive and comparison shoppers. And I really think of those as two different categories, even though they're closely linked.

Neither lends itself to loyal customers?

No. That's what's so scary about customer retention in the online space. We've created this empowered, impatient customer who has a short attention span, a lot of choices, and a low barrier to switching. That's really a function of two factors. First, it's the inherent benefit of the Internet that it is empowering. You as a consumer have much more choice and more information than you've ever had before. But the second part the market itself created by there being so much venture capital funding so many dot-coms. The game at this time last year was about getting eyeballs and acquiring first-time visitors. People threw an unprecedented amount of money--an unrealistic amount of money--at consumers to get them to come to sites. And what that ended up doing was raising the expectation among consumers that they should get something for nothing.

Is there hope then that the other half of the population, which hasn't gone online, will not have learned that the Web is full of freebies--that maybe they'll expect to pay higher prices?

I don't know if they'll expect to pay higher prices. But we're going to have to retrain consumers not to expect free gifts and free shipping and, you know, loss-leader products and that sort of thing. And I don't think that's going to be easy, though I do think some people who are your Web shoppers or Web buyers today will revert back to their traditional behavior when the deals go away. That's what they tell us in focus groups.

But I think that people who are not online today will probably not really become Web buyers in their first six or even 12 months of usage. The killer application for the non-Web user today is most likely to be information access and communication. They feel a lot of pressure that they are out of the loop with the rest of the world. They'll be going to the Web because of those pressures, not because they want to buy something. But once they get online and they start buying, I do think that they'll be different.

We asked people to identify themselves. Only 5% of the people who described themselves as "I always buy the same brand no matter what" were Web shoppers. But 15% of non-Web users described themselves as that.

As nonusers today move onto the Web, we'll find they're less adventuresome, less experimental. They're less affluent, they're typically a little older than the norm, and they're more fearful about security and privacy. They're going to be a conservative group as it comes to consumption and commerce behavior. That can be a good thing for people who are trying to build brand loyalty, because those people tend to be more loyal in their offline behavior as well.

Is it still possible to create entirely new brands on the Net?

Well, I guess you should never say never. But it's going to be a huge uphill challenge at this point. Dot-coms will be better off if they can affiliate with brands that are already known. The challenge if you're a new brand and only exist in cyberspace is that you've got to build customer confidence from scratch. Customers have no reason to believe your claims. You have to spend a lot of money in establishing this baseline sense of trust and confidence that a lot of brands are already way past. So it'd be expensive and challenging to build new brands online--probably not impossible, but very expensive. Anybody who is planning on doing that ought to plan a very large marketing budget.

Is there anything in particular you're going to look for this holiday shopping season?

Yes. I'm going to really be looking at what all the major retail brands--whether they're brick and mortar, click and mortar, or dot-com--have done and how they've invested to improve fulfillment. And that goes for everything from how fast the shopping cart works, to how accurate the product-availability information is, to how good the product-tracking information is, to whether or not when the box arrived at its destination it had the right stuff in it.

That is where the problems that people experienced last year were. And I don't think consumers will be willing to give it another shot after this year.