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					                           “Electronic Retailing & eMarketing” NEWSLETTER
                          HERMES (Human Awareness Network of eCommerce)
                                   Issue No. 5 – September-October 2000                                          Hellenic Electronic
                                                                                                               Trading Research Unit



                           This issue and all previous issues are available at: http://www.heltrun.aueb.gr
                                To subscribe or unsubscribe, send a message to: fannych@aueb.gr


      ERNST & YOUNG: “GLOBAL ONLINE                                    Media Metrix, counting only November and December as
    RETAILING REPORT” SURVEY FINDINGS                                  the holiday period, forecasts average online spending to be
                                                                       roughly $331 per person. eMarketer forecasts that online
According to the Ernst & Young “Global Online                          holiday spending will reach $12.5 billion in 2000. Other
Retailing” report, in the United States, the clear world               estimates range from $19.2 billion (Computer Economics)
leader in online shopping, 39 million people shopped                   to $6 billion (BizRate.com). These estimates vary primarily
online in 1999, up from 17 million in 1998. According to               because of different definitions of e-commerce and different
the same report, in Europe, 8.3 million people shopped                 periods considered for the holiday season.
online in 1999, up from 5.2 million in 1998.
                                                                       How many buyers will it take to make these predictions
Based on report findings, the main reasons that non-                   come true? eMarketer estimates that 45 million consumers
buyers don’t buy online are:                                           will make purchases online during this quarter -- 81% of all
     Uncomfortable sending credit card information                    online buyers for the year. There are a few other research
     Prefer to see product before purchasing                          estimates:
     No existence of credit card
     Can’t get enough information about products to                       NPD Group expects 54 million consumers will
        make decision                                                       purchase at least one item online
     Not confident with online merchants
     Can’t talk to saleperson                                             According to Pricewaterhouse Coopers, over 75% of
                                                                            internet users will shop online for holiday gifts -- and of
In addition, the main concerns of the online buyers are:                    these browsers, 85% will make purchases Jupiter Media
                                                                            Metrix predicts 35 million US consumers will buy gifts
        Shipping costs too high                                            online, up from 20 million last year.
        Need to try on for fit
        Prices are too high
        Not appropriate for large items                               The NPD study, furthermore, points to a high number of
        Not appropriate for luxury items                              repeat customers -- 69% of sites from which consumers
        Want to see/feel them                                         intend to buy, will be ones they bought from in the past.
        Not appropriate for perishable items                          NPD Group study also points that US shoppers will spend
        Concern credit card information can be stolen                 $12.5 billion online this holiday season (November and
                                                                       December 2000) and 80% of all users will go online for gift
As far as retail companies is concerned, Ernst & Young                 ideas.
“Global Online Retailing” report, reveal the main sources
that companies anticipate future growth: new customers,                Assumptions about unlimited e-retail growth have generally
new categories, alliances, new channels, acquisitions,                 been curbed during the past year. But despite the gloomy
international expansion.                                               predictions, most researchers agree that this holiday season
                                                                       will find many shoppers still buying online.
Furthermore, virtual retail companies use the following
methods to attract new traffic to their sites: portals/online          According to PriceWaterhouseCoopers, 27% of Internet
ads, media TV/radio, print ads, cross-channel marketing,               users have begun to peruse the web for holiday items. 25%
direct mail, e-mail, special events, special incentives.               have actually purchased items online.


      NETIZENS READY TO SPEND ONLINE                                                   THE SEASON OF EGIVING

In its latest eHoliday Shopping Report, eMarketer estimates            It is no surprise that gifts and flowers are one of the better
that online buyers will spend an average of $280.27 this               revenue-generating online retail categories. But while
season, a 30% increase over 1999. The report also aggregates           eMarketer's new eHoliday Shopping Report projects e-
several other estimates of average spending per buyer -- the           tailers will amass a record $12.5 billion this fourth quarter,
highest being American Express' estimate of nearly $600.               gift buying is not just a year-end ritual.
Note that Forrester research counts only the last five weeks
through December 25 in its estimate. Additionally, Jupiter



Produced by eLTRUN (http://www.eltrun.aueb.gr) Edited by Adam Vrechopoulos (tel: +301 8203663, e-mail: avrehop@aueb.gr)
       Electronic Retailing & eMarketing, Issue 5, September – October, 2000                                                (page 2)




After the 1999 fourth quarter holiday season, e-tailers                    AMERICANS -- TWO-FISTED MEDIA USERS
geared up for Valentine's Day and held their virtual breaths
until the next onslaught of gift-giving holidays: Easter,              According to a recent NFO Interactive/Burke Inc. study,
Mother's Day, and Father's Day. Nielsen/NetRatings found               wired Americans spend 3.8 hours a week watching
an increase in traffic to Valentine-related sites during the           televesion while online. NFO and Burke also note that
week ending 6 February 2000 compared to the week ending                even when not done in conjunction with one another,
30 January 2000: 88% for gift sites, 78% for lingerie sites,           there is still a close relationship between Internet usage
and 32% for flower sites.                                              and Television viewership. Likewise, heavy, moderate
                                                                       and light television watchers spend a similar amount of
                                                                       time online.
These findings are similar to those of a separate study, by
BizRate.com, which had forecast an estimated 6.5 million
Valentine orders yielding $642 million in sales by                     NFO/Burke also found that broadband users average 5.0
Valentine's Day, 2000. More than 50% of online shoppers                hours per week simultaneously online and watching TV --
told BizRate that they intended to buy online for Valentine's          compared to users with dial-up access who averaged only
Day. They also revealed what they were getting for their               3.7 hours surfing and viewing. High-speed users spend an
loved ones.                                                            average of 15.9 hours per week watching television while
                                                                       their dial-up counterparts spend 17.4 hours per week.
Mother's Day contributed to a significant increase in flower           However, only 16% of respondents report having high-
sales, jumping from $54 million in April 2000 to $72                   speed access.
million in May 2000. Currently, the gifts and flowers market
is worth nearly $40 billion in US sales, according to various
industry sources.                                                               TOY SITES PLAY PRIVACY GAMES

                                                                       ClickSure.com reports that nearly 50% of the top 10 toy
eMarketer projects that online sales of gifts and flowers will
                                                                       sites do not post their privacy policies in an easily
continue to grow through 2004. Sales for 2000 will exceed
                                                                       accessible area of the purchase process. ClickSure also
$1.3 billion and more than double to $3.2 billion in four
                                                                       found that 70% do not identify the personal information
years.
                                                                       being collected. 30% of the sites do not provide users
                                                                       with a clear statement on the use of cookies and 20% do
Forrester Research projects online flower sales will rise by           not give a specific purpose for which the personal
more than 50%, from $354 million in 1999 to $550 million               information supplied will be used.
in 2000. By 2001, flower sales will reach $1 billion. Sales in
both flowers and specialty gifts will continue to increase so
that by 2004, revenue generated will reach $2.5 billion and                    US: WHERE THE WEB SHOPPERS ARE
$1.4 billion respectively.
                                                                       According to a recent report by The Conference Board
Top business executives are increasing their use of online             and NFO Worldwide, 34% of American households have
shopping as a way to complete their holiday gift buying                made an online purchase in the past year -- up 24% from
commitments. CEOExpress.com, a website for senior                      last year. Young adults (ages 25-34) represent the biggest
executives, reported that about 92% of the executives it               online shopping group, with 55% buying online this year.
surveyed purchase more gifts online. Almost 72% indicated              Consumers ages 35-44 represent the second most active
they are buying gifts for family and friends, rather than              market with 45%; those ages 65 and over are the smallest
shopping for business associates.                                      market, with only 10% buying online this year.

The story is different, however, for online gift certificates. A       The Conference Board/NFO also reports the latest online
study commissioned by CyberSource found that only 23%                  purchases by household income. Although the top income
of respondents had purchased gift certificates online. As              bracket shows the highest increase in online purchase
much as 70% of those who have never purchased a gift                   activity (up 13%), the second most substantial increase in
certificate online cited a low level of satisfaction with              online purchases occurred in the $25,000-$34,999
current online gift certificate offerings. In addition, 86% of         household income bracket (up 11%).
all online buyers believe that a graphically-rich electronic or
traditional paper gift certificate has greater gift-giving value       Conference Board/NFO notes that the Pacific region of
than a text-based email certificate.                                   the US supports the highest level of online shopping
                                                                       activity, with 42% of the region engaging in e-commerce.




       HERMES is a Human Network on Electronic Retailing. It is partially funded by the Greek Secretariat of Research and Technology
       (GSRT) and managed by eLTRUN (http://www.eltrun.aueb.gr)
Electronic Retailing & eMarketing, Issue 5, September – October, 2000                                                        (page 3)



The Mountain states follow closely behind with 38%                        Even consumers who participate in loyalty programs don't
shopping online, followed directly by the East and West-                  evince a high degree of enthusiasm -- only 35% belong to
North Central regions with 35%. The New England region                    more than three programs.
has the smallest amount of online shoppers: just 29%.
                                                                          A recent Gomez study reports that 88% of online e-tailers
The report also charted the 3 biggest "barriers" consumers                have prioritized customer service for the 2000 holiday
feel hinder their online shopping experience: price, security             season. 77% of firms consider on-time delivery a main
and ease of navigation. More than one-half of consumers are               priority. 85% of pure-plays and 88% of click-and-mortars
still looking for the best prices online.                                 will indicate a "last day to shop" on their site. Companies
                                                                          believe these efforts will help them capitalize on an
eMarketer forecasts the average annual online expenditure                 estimated $11.4 billion market this holiday season.
of adults ages 18+ will increase from $705 in 2000 to $1,130
in 2003.                                                                  One way e-merchants attempt to lure new customers is
                                                                          through online coupons. eCoupons are now 10% of all
                                                                          coupons used, up from 5% in the fall of 1999. So says the
#1 Online Bookstore Is...
                                                                          NPD Group, which also concludes that 27% of people
The latest PowerRankings survey by Forrester Research
                                                                          online are using e-coupons, down slightly from the peak
reports that Borders.com rates first in online booksellers
                                                                          usage of 30% during the year-end holiday season.
over Amazon.com. Forrester analysts measured consumer
opinion and awarded Borders.com a score of 66.83 and
Amazon.com a score of 66.67.                                              Jupiter finds that 73% of consumers typically wait for
                                                                          discount promotions to appear before making a repeat
                                                                          purchase at a particular e-tailer. Use of such promotions
          EARNING CUSTOMER ELOYALTY                                       rose during Christmas week in 1999, as 42.2% of
                                                                          respondents to a Roberts Stephens poll indicated that they
                                                                          used a coupon with their purchase online.
Customer loyalty is a key driver of profitability for both
online and offline companies. According to a study by Bain
& Co. and Mainspring, the more often a customer visits a                  Use of e-coupons are most popular among grocery
site, the more likely a customer is to spend an increasing                shoppers. Other categories associated with e-commerce,
amount of money, and thus generate profits for the e-tailer.              such as toys, books and music, are among the e-coupons
For instance, in apparel, the average repeat customer spent               most frequently redeemed through any sales channel. The
67% more overall in the third year of his or her shopping                 NPD Group found that 59% grocery shoppers use online
relationship with an online vendor than in the first six                  coupons, and nearly half as much redeem online coupons
months. And, over three years, customers referred by online               for books and health-related products.
grocery shoppers spent an additional 75% of what the
original shopper spent.                                                   Redemption locations for online coupons differ depending
                                                                          on the category. eCommerce category coupons tend to be
Internet retailers relying on customer loyalty should beware,             redeemed online more frequently than other coupon
however -- their customers will jump ship if they do not                  categories. NPD found that toy e-coupons posted the
heed other factors. Jupiter Media Metrix finds that 75% of                highest online redemption rate at 87%, followed by books
online consumers who participate in loyalty programs say                  at 83%.
they are not what motivates them to make online purchases.
Instead, e-commerce providers should fill functionality gaps
or face losing customers to competitors. Only 22% of 1,200                         WEB ADVERTISING:
online consumers said loyalty programs served as an                        NOT JUST CLICKTHROUGHS ANYMORE
incentive to buy online.
                                                                        According to the new Q3 2000 Online Advertising Report
Jupiter argues that loyalty programs must go beyond giving              from AdKnowledge, 61% of websurfers who click through
out points and should reward loyalty with improved service              an advertisement are "converted" (AdKnowledge defines a
such as priority service, personalized offers, or e-mail                conversion as a purchase, registration or request for
updates. This was further underscored by the survey data,               information). As time elapses, the clickthrough-to-
which emphasized customer concerns about service:                       conversion rate drops.

                                                                        In fact, AdKnowledge reports that 32% of all conversions
   72% of respondents said that customer service is a
                                                                        happen after viewing an ad without clicking through. The
    critical factor in shopping satisfaction
                                                                        report also notes that the number of websites seeking
                                                                        advertising has increased by 35% over Q3 -- a 22% rise
   Only 41% indicated they were satisfied with the service             since the previous quarter.
    they had experienced




ELTRUN is the eBusiness Center of Athens University of Economics and Business (AUEB)
      Electronic Retailing & eMarketing, Issue 5, September – October, 2000                                                (page 4)



  EUROPEAN USERS: THE MORE THEY SURF, THE                              However, poorly instituted live interaction has the potential
            MORE THEY'LL SHOP                                          of alienating more customers than it would help, leaving
                                                                       companies treading very gingerly toward implementation.
According to Jupiter Research, by 2002, 51% of online Western
Europeans will be internet veterans. Jupiter reports that the          A study this year by Datamonitor found that U.S.
number of people online in the six strongest internet markets          businesses lost more than $6.1 billion (US$) in potential
(UK, Germany, Denmark, Sweden, France, Finland) will                   Internet sales in 1999 because of poor online customer
increase by 85.6 million over the next five years.                     service, and estimated that an industry-wide failure to
                                                                       resolve the problem could lead to at least $173 billion in
Jupiter charts the progression of Internet penetration over the        lost revenues through 2004.
next few years in terms of three Internet experience levels.
"Veterans" have been online for more than two years,                   Additionally, Datamonitor reported that 7.8 percent of
"intermediate" users have been using the net between one and           online transactions initiated by consumers are abandoned
two years and "newbies" are those who have been using the              because of poor customer service. Obviously, no one
internet for one year or less.                                         thought that sub-standard customer service was a boon for
                                                                       business. But until relatively recently, few companies
Jupiter also notes that online shopping in Europe depends on           seemed to realize just how negative the impact could be.
Internet experience: 11% of newbies and 41% of veterans have
purchased something online. Additionally, 34% of users who             The general course of action seems obvious -- get live
have been shopping online for one year or less have spent less         interaction. However, Datamonitor, estimates that only 3
than EUR100 in the past year -- only 13% of those with two or          percent of e-commerce Web sites currently use live chat.
more years experience spent the same amount. However, 25%              Live interaction becomes an e-tailer's highest profile
of experienced shoppers have spent EUR1,000 or more in the             human interaction with a customer, meaning that
last twelve months, compared to 12% of inexperienced                   everything has to be tuned to a perfect pitch.
shoppers.
                                                                       Additionally, customer service agents, whose previous role
Finally, according to an ActivMedia survey, online sales for the       has chiefly involved the telephone, must now be able to
B2C market will reach $1.1 trillion by 2010. Respondents               incorporate the typing, spelling and grammar skills to
predict that online sales for 2000 will total $56 billion -- a         handle real-time interactive chat with restless consumers.
103% increase from last year.
                                                                       Finally, and perhaps most crucially, the revamped
                                                                       customer service must integrate seamlessly not only with
  INTERNET PENETRATION IN WESTERN EUROPE                               the company's existing Web site, but the company's entire
                                                                       operations, online and offline.
According to NetValue, 50% of Denmark's households are
online. Spain has the same number of wired households as               The Web site of brick-and-click apparel retailer Lands' End
Denmark, although they represent only 12.7% of all Spanish             -- which in September 1999 became one of the first
households.                                                            companies to institute live interaction -- offers perhaps the
                                                                       preeminent online model.
Due to a low percentage of online households, 46.2% of which
have been online for less than one year, NetValue categorizes          Lands' End Live offers several customer service
Spain as an "emerging internet market". Likewise, the                  capabilities, starting with the option of instant chat from a
following gender breakdown of each country studied shows the           service agent. That agent can not only answer questions,
lowest percentage of female users, 35.4%, are in Spain.                but also make shopping recommendations -- causing single
                                                                       or split-screen Web pages to open right up on the
                                                                       customer's browser.
NetValue notes that Denmark also takes the lead in e-mail
usage; 71.8% of online Danes are using e-mail, as are 66.3% of
wired French and 64.3% of Spanish users. Percentages are               Customers with a second phone line can request that a
slightly lower in the UK and Germany -- 60.6% and 51.2%                Lands' End agent call them, enabling simultaneous Internet
                                                                       and telephonic service. The return call usually arrives in
respectively.
                                                                       well under a minute and often within 10 seconds.
               IS LIVE INTERACTION READY                               Lands' End does not have statistics that directly track the
                     FOR PRIME TIME?                                   financial impact that live interaction has had on sales.
                                                                       However, online sales for Lands' End improved from $61
Online businesses unmistakably want to augment their                   million in 1998 to $138 million in 1999.
customer relations with everything from instant messaging to
real-time online voice conversations, as studies, analysts and         It does appear that the pace of instituting live interaction
experience have convinced the industry that high-tech customer         will pick up, as spending on eServices software is expected
service is key for retaining customers.                                to increase from $162 million at the end of 1999 to $1.95




      AUEB is member of GeM (Global eCommerce Masters), http://www.eltrun.aueb.gr/gem
      Electronic Retailing & eMarketing, Issue 5, September – October, 2000
      (page 5)


billion by 2004. Furthermore, more companies are
coming to terms with the cost of live interaction,
realizing that not only in the online omelet business
do you have to break some eggs.

As more companies drift toward live interaction,
more options will be made available, and therefore
more complexity. For example, Voice-Over Internet
Protocol (VOIP), through which customer service
agents and consumers can communicate verbally over
their computers using microphones and speakers, will
arrive within the next five years, according to Huff.

According to a May study by Datamonitor, 25 percent
of Web-enabled call center solutions by 2004 will
encompass e-mail, self-service and live interactive
help. In other words, ubiquity is still a long way off.




      HERMES is a Human Network on Electronic Retailing. It is partially funded by the Greek Secreteriat of Research
      and Technology (GSRT) and managed by eLTRUN the eBusiness Center of Athens University of Economics and
      Business (http://heltrun.aueb.gr)

				
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