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Annual E-Commerce Report

American Customer Satisfaction Index

February 16, 2010 by Larry Freed President and CEO, ForeSee Results

© 2010 ForeSee Results

Annual ACSI E-Commerce Report, February 2010

Executive Summary: Customer Satisfaction with E-Commerce Rebounds

After a slight decline last year, customer satisfaction with the e-commerce sector has begun to rebound, with a year-over-year increase of nearly 2%. This increase brings the aggregate score for the sector to 81.4, nearly matching its 2007 pre-recession high of 81.6. All scores are reported using the 100-point scale of the American Customer Satisfaction Index (ACSI).

Because the ACSI is predictive of future financial success on both the macro- and micro-economic level, the rebounding score is good news for a troubled industry plagued by recessionary concerns. While economists debate whether or not the recession is truly over, and whether the economy will get better or worse, the increase for the e-commerce sector bodes well for all companies concerned. (Visit www.theacsi.org for extensive academic research about the link between ACSI and stock prices, GDP, and consumer spending.)

The e-commerce sector (measured by the ACSI every fourth quarter for the past ten years) is comprised of the following three industries, chosen because they offer the greatest GDP contribution in the sector: e-retail, online brokerage, and online travel companies. The e-business sector report, which includes online portals, search engines, and news and information sites, is released every August.

Key findings of the February E-Commerce Report Include:

· Satisfaction with e-commerce is up nearly 2% since last year to 81.4

· The increase in the overall e-commerce sector score is clearly driven by the rebounding online brokerage industry, up 5.4% to 78. E*Trade saw the biggest year-over-year increase.

· The e-retail industry, always the strongest within the e-commerce sector, gains one point with a score of 82. Netflix slips past Newegg for the top spot.

· The online travel industry ties its all-time high aggregate score of 77, not seen since 2005. Priceline has the biggest year-over-year increase, but Expedia takes the top spot.

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Annual ACSI E-Commerce Report, February 2010

The Decade in Review: Ten Years of Measuring E-Commerce

The ACSI, which has measured customer satisfaction with goods and services at more than 200 companies since 1994, first started measuring customer satisfaction with the e-commerce industry in 2000. The 2009 report marks the tenth report on e-commerce, affording a broader look at e-commerce trends over the last decade.

Customer Satisfaction With E-Commerce Over Time

80.8 79.6 78.6 80.0 81.6

82 Customer Satisfaction (100-point scale) 81 80 79 78 77 76 75 74 73 72 2000 2001 2002

81.4 80.0

77.6 75.2 74.3

Customer satisfaction with the overall e-commerce sector has increased more than 8% since it was first measured at 75.2 in 2000. Several setbacks occurred along the way, including substantial dips in 2001, 2004, and 2008. These fluctuations follow the normal recessions and contractions of the economic cycle that define trend growth, and, when examined from a bird's eye view, illustrate the progressive competence of the market as a whole. The trending course was always toward escalation. This shows that companies can increase their long-term vitality even during short-term bursts by taking the lessons of customer satisfaction to heart.

2003

2004

2005

2006

2007

2008

2009

As shown in the graph below, when the ACSI first began measuring the e-commerce sector in 2000, there was a 12-point gap between the highest and lowest scoring industries (retail and travel, respectively). Over the years, that gap has been cut in half, usually a sign of increased maturity and the improvements that come with implementing industry-wide best practices.

2000 75.2 78 72 66 2001 74.3 77 69 69 2002 77.6 83 73 77 2003 80.8 84 76 77 2004 78.6 80 75 76 2005 79.6 81 76 77 2006 80.0 83 78 76 2007 81.6 83 79 75 2008 80.0 82 74 75 2009 81.4 83 78 77 E-Commerce Sector* Retail Brokerage Travel

*E-Commerce is the sector; e-retail, online brokerage, and online travel are the measured industries within the e-commerce sector.

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Annual ACSI E-Commerce Report, February 2010

Online Brokerage: Scores Rebound

The online brokerage industry, up more than 5% to a score of 78, sees the highest year-over-year increase of any of the industries measured within the e-commerce sector. The massive dip last year is understandable given the state of the economy, and the industry has not yet regained its previous 2007 high of 79. Overall, customer satisfaction with the online brokerage industry has increased six points and 8.3% since the ACSI first started its measurements in 2000.

10 Years of Satisfaction with Online Brokerage

79 78 76 75 76

80 Customer Satisfaction (100-point scale) 78 76 74 72 70 68 66

78

72

74

73

69

The aggregate industry score is made up of the scores of several of the biggest players in the online brokerage field.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Individual Company Scores

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

% change since last year 5.4% -1.3% 1.3% 5.4% 7.0% 7.2%

% change since first year 8.3% -1.3% 3.9% 11.4% -1.3% 12.1%

Brokerage Fidelity The Charles Schwab Corporation All Others TD Ameritrade E*TRADE Financial Corporation

72 NM 76 70 NM 66

69 NM 72 65 NM 66

73 NM 76 73 NM 69

76 NM 75 77 NM 71

75 NM 71 78 NM 70

76 NM 74 79 NM 71

78 80 80 77 77 74

79 84 82 78 80 73

74 80 78 74 71 69

78 79 79 78 76 74

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Annual ACSI E-Commerce Report, February 2010

The online brokerage category dropped 6.3% in 2008 to a score of 74, the lowest level since 2002, but rebounded in 2009 to close at its pre-recession level, up 5.4% to 78. Customer satisfaction with online brokerage services suffered in 2008 due to a drop in equity prices and great concerns by consumers to the stability of the financial system. The rebound in 2009 is driven by a renewed confidence in our financial systems and a rise in equity prices.

While large, full-service investment brokers like Fidelity and Charles Schwab did not fall as hard in 2008 as some of their smaller competitors, their recovery was also less dramatic in 2009: Schwab's score improved only 1%, while Fidelity slipped the same percentage point to tie with Schwab as the industry lead at 79. The reverse was true for TD Ameritrade and E*Trade, which plunged at the end of 2008 but significantly recovered in 2009. In fact, while TD Ameritrade suffered one of the largest single-year drops ever in 2008 (falling 11% to a score of 71), it gained 6% back in 2009. Although it still trails every other brokerage service analyzed, E*Trade has the biggest year-over-year increase (5 points and 7.2%), as well as the largest increase over time (12.1% increase since first being measured in 2000).

E-Retail Regains Last Year's Losses

After a dip last year at the height of the recession, the e-retail industry rebounds one point to match its 2007 score of 83. E-retail is still slightly short of its all-time high of 84 seen in 2003, but it is five points and 6.4% higher than when the ACSI first started measuring the industry in 2000.

10 Years of Satisfaction with Online Retail

84 83 81 80 83

85 Customer Satisfaction (100-point scale) 83 81 79 77 75

83 82

83

78 77

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Customer satisfaction with online retail continues to vastly outpace satisfaction with traditional retail channels. As reported in a concurrent ACSI study, satisfaction with offline retail is up only a point to 76.2. However, e-retail, which long ago ceased being a novelty and faces ever-increasing expectations from online shoppers, is doing a substantially better job of satisfying customers than offline retail. As measured by the American Customer Satisfaction Index, customer satisfaction with e-retail is 9% higher than satisfaction with the overall retail industry. Overall retail scored a 76.2 in fourth quarter 2009, while the aggregate satisfaction score for e-retail rebounded to 83.

www.ForeSeeResults.com

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Annual ACSI E-Commerce Report, February 2010

In the early days of e-retail, online stores struggled to compensate for customers' inability to touch and feel products as they might in a traditional, brick-and-mortar store. Today's online stores have evolved significantly and now offer enhancements, such as 360º views of the product, tools that enable shoppers to dress virtual models, and extensive product information and specifications that often exceed what is available at a store or in a catalog. These features, combined with the 24/7 convenience and ease of use of nearly all e-commerce stores, have contributed to high customer satisfaction with the online channel. In fact, the Top 40 Online Retail Satisfaction Index, a study by ForeSee Results, shows that Internet pure plays in general enjoy even higher customer satisfaction scores than the websites of multi-channel retailers. The aggregate e-retail industry score is made up of the scores of several of the largest online-only retailers in the field. Individual Company Scores

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 % change since last year 1.2% 2.4% -2.3% 0.0% 1.2% 0.0% 1.3% % change since first year 6.4% 3.6% -1.1% 2.4% 7.8% 2.5% -1.3%

Retail Netflix Newegg Amazon.com, Inc. All Others Overstock.com eBay Inc.

78 NM NM 84 77 NM 80

77 NM NM 84 75 NM 82

83 NM NM 88 82 NM 82

84 NM NM 88 83 NM 84

80 NM NM 84 79 NM 80

81 NM NM 87 80 NM 81

83 NM NM 87 82 NM 80

83 84 87 88 82 80 81

82 85 88 86 82 82 78

83 87 86 86 83 82 79

Long at the top of the e-commerce heap, Amazon has been tied or overtaken by Newegg and Netflix in the last two years. While video-on-demand and movie rentals have never been Amazon's core business model, Amazon should take heed when any company selling similar products or services surpasses them in customer satisfaction. Netflix and Overstock have higher online satisfaction today than they did before the recession, two years ago. The other three retailers measured have not yet recouped their recession-year losses.

www.ForeSeeResults.com

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Annual ACSI E-Commerce Report, February 2010

Online Travel: Small Increases for Aggregators

The online travel category is up 2.7% and two points to 77, regaining its previous high-water mark from 2005. While it's good news that they have regained their pre-recession customer satisfaction levels, they still haven't made any progress since 2002, the first year the ACSI started measuring the travel aggregators.

8 Years of Satisfaction with Online Travel

79 Customer Satisfaction (100-point scale) 77 75 73 71 69 67 65 2002 2003 2004 2005 2006 2007 2008 2009

77

77 76

77

76

77 75 75

Individual Company Scores

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 % change since last year 2.7% 2.6% 1.3% 2.7% 5.6% 0.0% % change since first year 16.7% -1.3% 1.3% 0.0% 15.2% -1.3%

Travel Expedia, Inc. All Others Orbitz, LLC (Cendant Corporation) Priceline.com Incorporated Travelocity.com L.P. (Sabre Holdings Corporation)

66 NM NM NM 66 NM

69 NM NM NM 69 NM

77 80 77 76 71 76

77 78 77 77 71 76

76 76 77 75 73 76

77 79 79 74 72 75

76 78 76 75 72 74

75 75 79 73 73 73

75 77 77 74 72 75

77 79 78 76 76 75

Expedia saw an increase of two points for a score of 79, keeping it ahead of its travel aggregator competitors again this year. The "all others" category, made up mainly of airline and hotel websites along with a few other discount travel aggregators, outperformed Orbitz and Travelocity in terms of online customer satisfaction. A customer is probably not going to go to an aggregator if the experience is less satisfying than with the direct source.

www.ForeSeeResults.com

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Annual ACSI E-Commerce Report, February 2010

About the Author

Larry Freed is an expert on web effectiveness and web customer satisfaction. He is President and CEO of ForeSee Results, a market leader in customer satisfaction measurement on the web, which utilizes the methodology of the American Customer Satisfaction Index (ACSI).

About ForeSee Results

As the leader in online customer satisfaction measurement, ForeSee Results captures and analyzes online voice of customer data to help organizations increase sales, loyalty, recommendations and website value. Using the methodology of the American Customer Satisfaction Index (ACSI), ForeSee Results identifies the improvements to websites and other online initiatives with the greatest ROI. With more than 44 million survey responses collected to date and benchmarks across dozens of industries, ForeSee Results offers unparalleled expertise in customer satisfaction measurement and management, particularly in the retail category, with more than 140 retail measures in ForeSee benchmarks.

ForeSee Results, a privately held company, is headquartered in Ann Arbor, Michigan, has offices in London and Toronto, and can be found online at www.ForeSeeResults.com. ForeSee Results is the ACSI's e-commerce and e-business partner.

About the ACSI

The American Customer Satisfaction Index is a national economic indicator of customer evaluations of the quality of products and services available to household consumers in the United States. It is updated each quarter with new measures for different sectors of the economy replacing data from the prior year. The overall ACSI score for a given quarter factors in scores from more than 200 companies in 44 industries and from government agencies across the previous four quarters. The Index was founded at the University of Michigan's Ross School of Business and is produced by ACSI, LLC.

www.ForeSeeResults.com

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