Cognitiative, Inc.'s New Pulse of the Customer Research on Holiday Web Shopping Identifies Key Online Purchasing Trends.

Business Editors and High-Tech/Retail Writers

SAN FRANCISCO--(BUSINESS WIRE)--Jan. 18, 2000

Online Consumers Report That Holiday Shopping Was Successful

And They Plan To Buy More Online In 2000

Despite some well-publicized glitches, the majority of online shoppers report their 1999 holiday shopping was very successful and, as a result, plan to increase their online spending in 2000, according to research released today by Cognitiative, Inc., a San Francisco-based e-business consulting firm. More than 90% of the consumers in Cognitiative's Pulse of the Customer(SM) Q1 2000 research indicate that their online holiday shopping experiences met or exceeded their expectations, and 80% of consumers surveyed expect their online shopping activities to increase this year. Products traditionally associated with the Web, such as books, music, toys, apparel and software, fared the best in the holiday season. Increased dot-com promotional spending fueled sales.

Pulse of the Customer, a quarterly research series conducted by Cognitiative Inc., is designed to track Web consumers' attitudes and preferences regarding their online experiences. This quarter, the research study comprised a nationwide sample of consumers who shopped online in the 1999 holiday season -- a group that represented a broad spectrum of demographic profiles. According to the research, more than 50% of Pulse of the Customer survey respondents engaged in 5 or more online shopping sessions; 70% spent 5 or more hours online selecting products, and 50% spent in excess of $300 on online holiday purchases.

"We will remember Q4 1999 as the period when e-commerce got real traction in the mainstream U.S. population," says Laurie Windham, president and CEO of Cognitiative. "Holiday gift purchasing is a `mission-critical' activity for consumers, and our data shows that many people relied on the Internet for their shopping. While we've all heard anecdotal horror stories about recent problems, in reality the e-consumer seems very satisfied with their online holiday shopping experience."

Online Consumer Confidence is on the Rise

The Pulse findings indicate that consumer confidence in e-commerce has reached an unprecedented high. Several factors contribute to the noted increased confidence: more positive word-of-mouth from friends and family, better online product selection, and successful, secure credit card usage. In addition, the high level of noise created by the collective dot-com advertising and publicity expenditures seemed to have positively impacted consumers' confidence.

"E-commerce has gained credibility because the majority of the market is hearing and experiencing good things about online shopping," says Windham. "While issues such as credit card security will continue to be a concern, shoppers' actual experiences are proving that these issues are not really creating problems for the vast majority. In effect, a critical mass is being reached, and consumers are finding safety in numbers."

Shoppers indicated the key benefits of online holiday shopping to be convenience (83%) and time savings (81%) -- a welcome relief to the usual crush of holiday shopping at malls and retail stores. While many online consumers use the Internet for price comparisons, a relatively smaller proportion (51%) considers saving money as a key online advantage. Those who reported unmet expectations had problems with out-of-stock products, poor customer service, expensive and delayed shipping, and sites that were too slow or simply inaccessible. Online Product Category Preferences Are Strongly Established

Web product purchases this season indicate that "traditional" Internet product categories are still doing well. Consumers reported books (57%), music (42%), apparel (41%), toys (40%), software (34%), and consumer electronics (28%) topped their list of products purchased online in the 1999 holiday season. Other product categories appear to be having difficulty getting e-commerce traction - especially the types of products that consumers need to touch, see, smell or try on before purchasing, such as furniture, jewelry, food, cosmetics and some types of clothing. One shopper summed up the dilemma by saying, "I need to see the front and the back of the product to feel comfortable buying it."

"Consumers prefer to only buy online those types of products that they are confident will meet their needs and therefore not need to be returned," Windham says. "`In effect, we hear online consumers say `I'll only buy what I'm sure I'll keep.'" The Effect of Unprecedented Advertising and Promotional Spending

Online holiday shoppers most definitely noticed the glut of dot-com advertising and promotions in the 1999 holiday season. Consumers were most aware of increased advertising on TV, radio and in magazines. And while the amount of advertising reached irritating levels for many consumers, they indicate that these advertising venues are important ways for dot coms to raise their awareness and pique their curiosity.

Consumers indicated that they responded positively to promotional offers from dot coms. Seventy-one percent say they bought from Web sites that offered free shipping with their purchases. Another 54% responded to offers of a discount on their first purchase, 40% say they used online coupons, and 25% also pursued free gifts with their orders. Shoppers indicate ongoing availability of promotional offers will influence their future Web brand loyalty. More than 64% indicated that they expect to continue to receive free shipping and no taxes on their online purchases.

These holiday loss-leader tactics may prove to be a two-edged sword for dot coms in 2000. "Promotional offers were successful in driving traffic to new Web sites," says Ken Orton, Cognitiative's chief e-business strategist, "but it also created customer expectations about entitlements in online shopping which dot coms can't afford to maintain. If a shopper visits a site again expecting the discount and is disappointed, our research indicates that they will simply find another site that offers a better deal." About Cognitiative, Inc.

Headquartered in San Francisco, CA and founded in 1995, Cognitiative, Inc. is a planning, marketing and operating strategies consulting firm serving e-business and technology companies. The firm employs knowledge of best practices in developing e-business strategies, acquiring and retaining customers, and creating effective operations to help companies achieve business velocity and create market value. The company's principals include Laurie Windham, author of the book "Dead Ahead: The Web Dilemma and the New Rules of Business" (Allworth Press, September 1999, available in retail and online bookstores everywhere), and Ken Orton, chairman of the board of Wine.com, and board member of Egghead.com (NASDAQ: EGGS), and autobytel.com (NASDAQ: ABTL). Cognitiative's clients include some of the most respected names in the technology and e-business industries.