In their efforts to keep customers loyal, many profit-starved Net retailers continue to spend a lot of money and time on providing a critical element: customer service.
And they should be. According to a BizRate.com industry study during the first quarter of this year, online shoppers rated customer support among the weak links of e-commerce sites. This follows Jupiter Communications research that found the percentage of customers saying they were "largely satisfied" with their online shopping experience dropped to 74 percent in January from 88 percent in July 1998.
Jupiter analyst Ken Cassar attributed the drop to site failures during the 1998 holiday season and increased consumer expectations. Additionally, he said, customers are now holding retailers to the same standards as their offline competitors.
"That's a big change from 6, 12, 24 months ago," Cassar said.
As a result, e-commerce players are devoting huge resources to handling customer complaints and problems. For example, about one in five Amazon.com employees now work in the company's customer service area.
BizRate.com estimates that Web shoppers contacted customer support on more than one in five online orders they placed in the first quarter of this year, which is bad news for retailers. According to BizRate.com, customers that didn't contact customer support were 22 percent more likely to buy from a site again.
Offline companies couldn't afford to stay in business if one out of every five customers returned to the store with a problem, said Paul Bates, vice president of BizRate.com's information products group.
"There's a long way to go in the online arena to get that ratio down," Bates said.
Even if a customer returns to a site, online retailers are having a difficult time building overall customer loyalty, said Forrester Research analyst David Cooperstein.
According to a recent Forrester study, 96 percent of online book buyers said they were satisfied with their online shopping experience and would return to the online store they picked. Yet 73 percent of those same buyers said they might shop elsewhere.
In light of those numbers, Cooperstein said online retailers need to work harder to please customers by simplifying the buying process through personalization, better order tracking, and one-click buying.
Amazon is one company doing all of this correctly, Cooperstein said.
But Amazon also lost $61.6 million during the first quarter of this year or 39 cents per share, and customer service, though only part of the company's operating costs, could continue to weigh on earnings.
Nonetheless, Amazon customer service manager Jane Radke Slade said the company will continue to emphasize customer service because it's considered a strength. However, Slade noted about 66 percent of Amazon's first quarter orders came from repeat customers who were less likely to need help.
Jupiter's Cassar said it's important for Amazon and other companies to reduce customer care costs.
"Profitablity on the Internet is all about scalability," he said. "Cost structure can't grow at the same rate as revenues do."