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Wednesday, February 16, 2005

Online Majors - Growing Pains & Sagging Customer Satisfaction

(Via Sriram) Amazon.com Inc. and EBay Inc looks like have lost some ground with customers, as the two Internet giants struggle to maintain a high level of customer satisfaction, while also expanding product lines to generate more sales, a recent study shows. Amazon.com's American Customer Satisfaction Index fell this year by 4.5 percent to 84 from 88 last year. EBay's ACSI fell 4.7 percent to 80 from 84. The ASCI is a national indicator of customer evaluations of the quality of products and services. The overall ASCI for e-commerce, which include the retail, auction, brokerage and travel categories, fell 2.7 percent from last year to 78.6, indicating that companies, in general, are struggling with their own growing pains.
"This business has been a victim of its own success," Claes Fornell, a University of Michigan business professor and founder of the CFI Group, said. "The online folks have suffered from the influx of more business, which they haven't been totally prepared to handle." In retail, for example, consumers last year spent a record $117 billion online, a 26 percent increase over the $93.2 billion spent in 2003, according to ComScore Networks. During the holiday shopping season alone, spending increased 28 percent to $23.6 billion from $18.3 billion. In the case of Amazon.com, the e-retail giant has grown from a seller of books and music CDs to an online department store offering products that range from clothes and electronics to jewelry and gourmet food. While offering more products increases sales, it also makes it more difficult to maintain a high level of customer satisfaction. "It's going to become more and more challenging, to say the least," Fornell said. "They're going to have to find the balance between adding more and more products, and maintaining the level of service that customers are use to."
Amazon.com is confronting mounting competitive pressure from traditional retailers that can offer more customer-service options, such as store returns for online purchases, and store pickups for online orders. This kind of competition between a pure online retailer and traditional retailers expanding to the web has never happened before. EBay is confronting the same paradox of having to increase services to boost revenues, which also makes it more difficult to please customers and maintain loyalty. The auction giant has grown from maintaining a community of individual buyers and sellers to more of a marketplace where a variety of small businesses can sell their wares. As EBay expands into retail, it's starting to compete with Amazon.com and traditional retailers, while also facing stiffer competition on the auction side from companies like Overstock.com.
"When you expand, you enter someone else's territory, and they're not going to just sit there." Despite the drops in the ASCI, Amazon.com and EBay still provide solid customer services, Claes said. The question is whether they can get back on track and move the scores up. "We don't know if this is a stumble, or the beginning of a trend," Claes said.

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