Customer Satisfaction Drives Sales and Loyalty for Top U.S. Retail Companies
Low Discount Prices Don't Guarantee Success During the Retail Recession
By Barbara Farfan, About.com
While the retail industry has been hyperfocused on pricing, the retailers who have continued to focus on customer satisfaction, like Amazon and Apple, have emerged as the winners in a losing holiday season.
The link between customer satisfaction and sales is not breaking news. The confirmation that overall customer satisfaction still matters in a price-conscious economy is definitely headline worthy. According to the "2008 Holiday Top 40 Online Retail Satisfaction Index" report from Foresee Results, the most satisfied customers still spend more, make more repeat purchases, and make recommendations to friends.
Proving that theory, Amazon.com reported its best holiday season ever, with a 44% increase in units shipped, a 7% increase in web visitors, and 6.3 million items ordered in a single day. Coincidentally, or not, Amazon.com also had the highest customer satisfaction scores in the first half of December.
When rating Amazon based on the merchandise available, the functionality of the website, the product information and descriptions, and the prices charged, Amazon customers awarded a score of 84 out of a possible 100. Amazon shoppers were happy with Amazon experience, and they made Amazon purchases in record numbers.
Some will argue that Amazon's 2008 holiday season
success was really only motivated by price, but the numbers from
liquidation e-tailer Overstock.com refute that argument.
Despite its everyday clearance prices, additional "Red Line Deals," and $2.95 shipping, Overstock's web traffic decreased by 16% this holiday season. Coincidentally, or not, Overstock had the third lowest customer satisfaction rating of the 40 major online retailers studied. Overstock's customers are dissatisfied despite its low price offerings, and they're avoiding the website in droves.
While this particular customer survey was focused on e-commerce, the connection between customer satisfaction and retail success is clear for traditional retailers as well. Apple saw a 19% increase in web visitors, is planning to open 30 or more new stores in 2009, and coincidentally, or not, has overall customer satisfaction ratings that far exceed any of its direct competitors.
On the other side of the satisfaction spectrum, in 2008 Circuit City saw a 21% decrease in holiday web traffic, was delisted from the New York Stock Exchange, closed 100 stores, and filed for Chapter 11 bankruptcy. Last year Circuit's City's overall customer satisfaction was the worst compared to its direct competitors, and could have been viewed as a predictor of future failure. Or perhaps its simultaneously low customer satisfaction ratings and poor performance are just a coincidence.
Retailers in all channels would do well to heed the warning. While pricing seems to be the main consideration for fearful consumers, it is still not the only consideration. A hyperfocus on pricing to the exclusion of other aspects of good retailing will result in a diminshed customer experience, decreased satisfaction, and eventually, the loss of reputation, the devaluation of brand, broken loyalties, and, as we will observe repeatedly in 2009, complete business failure.
Good pricing alone still doesn't take the place of good retailing