Survey: Customer satisfaction with e-commerce slipping

After three years of strong, sustained increases, customer satisfaction with e-commerce has declined, according to the University of Michigan's fourth-quarter American Customer Satisfaction Index (ACSI), which was released last week.

For the fourth quarter of 2004, the ACSI e-commerce customer satisfaction score dropped to 78.6, down 2.7 percent from the same quarter in 2003. The ACSI is compiled in conjunction with ForeSee Results.

"This is the first time since the ACSI's been measured that we've seen a drop in customer satisfaction. In the e-commerce category, the overall ACSI number went down," said ForeSee Results CEO Larry Freed. "So it causes great concern, because customer satisfaction is a great indicator for financial success."

E-retail received a score of 80, down 4.8 percent from last year's score of 84, and showed the biggest drop in satisfaction among the four e-commerce subgroups studied. The other three include online auctions, online travel and online brokerages. Ratings are calculated on the ACSI's 100-point scale.

Freed said the downward pressure on the ACSI e-commerce numbers is basically driven by two organizations: Amazon and eBay. "While both are still doing well comparatively, they've kind of gotten knocked down a notch," he said.

"Amazon went from an 88 to an 84 -- a drop of 4.5 percent," Freed said. "While 84 is still a good score, it's cause enough to say, 'Hey, what really happened here?'"

What happened, he explained, is that Amazon changed its business model dramatically over the past couple of years. "It's almost difficult now to classify them as a retailer," he said. "They're almost more of a platform rather than a retailer -- selling multiple products from multiple merchants. They really have broadened their market a great deal."

Freed said that's good news for Amazon because the company can expand its revenue opportunities. But it's not such good news if the company can't continue to provide a high level of customer satisfaction. "It is going to open the door for their competitors," he said.

Officials at Amazon couldn't be reached for comment today.

Freed pointed to Barnes & Noble, saying it has done an excellent job of staying focused on what it does, and the result has been that the company's satisfaction levels have remained high. Barnes & Noble scored 87 on the index for the fourth quarter.

Satisfaction with online auctions also dropped, down 1.3 percent from 78 in the fourth quarter of 2003 to 77 in the fourth quarter of 2004. This is due, in large part, to declining customer satisfaction with online auction giant eBay.

Freed said eBay is beginning to lose some of its uniqueness and appeal as it evolves. Initially, eBay was a global community of individuals that bought and sold used merchandise; its key competition was classified ads and swap sales, Freed said.

While that side of eBay still exists, its overall success lured small businesses to its marketplace. That allowed its product line to include new merchandise, placing the auction company in direct competition with other retailers, he said.

"EBay expanded its market reach and has been rewarded with revenue growth, Freed said. "While it still provides a very high level of satisfaction to its customers, it no longer holds the significant advantage it did last year."

Officials at the online auction company couldn't be reached for comment.

As for online travel, overall customer satisfaction dropped 1.3 percent, from 77 in late 2003 to 76 at the end of 2004. While Travelocity and the "all others" group saw no change, Orbitz and Expedia each dropped 2.6 percent, from 77 and 78, respectively, to 75 and 76.

Online travel companies face a tough battle for customers, primarily because there is a lack of differentiation among the key players, Freed said. In the future, those companies will have do better at satisfying customers and in their marketing efforts if they want to thrive, he said.

The aggregate score for online brokerages also dropped, from 76 to 75, down 1.3 percent year over year. Freed said the decline in online brokerage sites is due in part to the decline in customer satisfaction with Charles Schwab & Co., whose score dropped 5.3 percent from 75 to 71.

Like eBay and Amazon, Schwab moved away from its core business model over the past couple of years to a more full-service approach, Freed said, a change that means it competes with other full-service brokerage houses.

"Faced with competition from both online and offline brokerage services, this discount brokerage house tried to be all things to all people and has suffered the consequences in lost customer satisfaction," he said.

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