Bain & Company Research Says E-Tailers Fail to Get Full Customer Potential; Leave Large Sources of Internet Revenue Untapped.

BOSTON--(BUSINESS WIRE)--Nov. 23, 1999--

Improved Customer Management Could Increase Revenue by 2-5 Times;

Bricks-and-Mortar Retailers Fail to Capitalize on 

Customer Acquisition Advantage

Bain & Company, a global strategy consulting firm, announced today that based on its research, both pure play and bricks-and-mortar e-tailers fail to achieve full customer potential. Interviews with 522 customers, analysing their on-line shopping behaviour at 10 leading shopping sites, indicate that simple actions to increase customer loyalty, repeat purchases and sell additional products during customer site visits could generate up to a five times increase in revenue. Simply, converting more visitors to purchasers could easily generate a doubling of revenue. However, even the best e-tailers vary significantly in their ability to manage their customers as lifetime assets, and therefore fail to capture this upside.

"Most companies are still caught up in fighting to acquire customers. This is an increasingly difficult and unprofitable strategy," said Sarabjit Baveja, Head of E-Commerce Product Development at Bain & Company. "E-tailers are missing the fact that the secret to profitable growth lies in the economics of a loyal and trusting customer base. Even the best sites are falling short on the basics of delivering an outstanding customer experience, and are not creating a true relationship with a customer."

Illustrating the magnitude of untapped potential for e-tailers, the research highlights the example of Amazon.com. If the company increased its focus on managing the customer corridor (i.e. acquire customers, upsell/cross-sell, and increase repeat purchases), Amazon.com's full revenue potential could grow to over $2 billion.

The Bain research shows that many web customers display relationship oriented behaviour with sites they trust. This translates into large upside from upselling/cross-selling and repeat purchase. Key areas where e-tailers are failing to capture these opportunities include delivery of an excellent end-to-end purchase experience, use of customer information to add value to the customer, and building of a broader relationship beyond the immediate purchase.

"The opportunity from treating customers like assets instead of transactions is staggering," added Mr. Baveja. "Web customers display behaviour that rewards trust, and e-tailers are missing out on the simple opportunities to grow profitably by focusing on generating long term customer relationships."

The Bain findings further indicate that:

- Customer acquisition costs are high and increasing, making

customer loyalty critical to creating profitable customers.

- Bricks-and-mortar retailers have an advantage, as they have an

established brand and customer trust. These traditional retailers

can leverage this advantage on-line, but most are failing to

capture the true potential here.

- There is an enormous value in upselling (selling additional

products during a customer visit), but companies have difficulty

in capturing it. Even today, an additional 40 - 60 percent of

revenue is available for e-tailers who can successfully

upsell/cross-sell customers.

- Trust matters a lot. Customers are willing to buy across

categories from a brand they trust. While only 2 percent of web

shoppers would buy furniture from the Gap, a remarkable 25

percent of loyal Gap shoppers would buy furniture from its site.

- Loyal customers value an excellent end-to-end purchase

experience, and value e-tailers that use information about them

to deliver increased value and convenience. Most e-tailers fall

far short here.

- Even the best sites are falling short on delivering a positive

shopping experience simple factors such as ease of use, customer

service, reliability, accurate fulfilment, and returns.

"E-tailers cannot afford to focus on transactions alone," said Sarabjit Baveja. "This is costly and unprofitable. On-line merchants must supplant their transaction-based business practices with a more relationship oriented approach to customers in order to keep those customers for a lifetime."

This is the first in a series of announcements by Bain regarding business to consumer e-commerce. Bain & Company is one of the world's leading global strategy consulting firms, serving clients across six continents. Based in Boston, Mass., Bain has worked with over 1,500 major multinational and other corporations from every economic sector, in every region of the world, to improve and help sustain bottom-line results. Quantum leaps in performance are a frequent outcome of the customised, creative and often breakthrough strategies Bain develops for its clients. Founded in 1973, the company has 25 offices world-wide.