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E-Tailing: It's All About Service

Who knew that something as low-tech as a shopping cart would become a ubiquitous, instantly recognizable icon in the world of e-commerce? Today, most Web sites use the cart symbol and concept for easy check out. They've figured out how to do reliable and cost-effective shipping. And thanks to the likes of Google (GOOG) and Yahoo!(YHOO), a small shop owner in Vermont selling something as niche as antique teddy bears has the power to flash an ad in front of anyone in the world who types in "antique teddy bear" on a Web search engine.

But despite e-tailers' best efforts, lots of "eyeballs" out there still aren't necessarily translating into sales. According to Jupiter Research, less than 5% of people visiting a Web site ever turn into a paying customer. The rest? Some frustrated sites have coined a term for these visitors: "dumb surf." And if those folks have clicked through a paid search ad without buying anything, bringing them to the site actually costs the Web site money.

SMOTHERED WITH LOVE. How to convert these window shoppers into paying customers? Behold the next frontier in e-tailing -- customer service. Dubbing 2005 "the year of the customer," (OSTK), for one, now has 60 highly trained customer-service reps, about 20 to 30 of whom staff a 24-hours-a-day department to answer customer questions via live Web chats on the site. That's in addition to Overstock's usual 800-number customer-service staff of about 400.

When a customer engages in a live chat with a sales rep, the average purchase doubles in value, Overstock has found. "We're all about smothering the customer with love," says Overstock CEO Patrick Byrne.

Then there's LivePerson (LPSN), a publicly traded outfit based in New York that makes customer-tracking software. What's most cool about LivePerson's technology is that it follows what customers are doing and can automatically flag and offer help to e-customers based on rules individual e-tailers set. It might offer a chat to someone who keeps searching for the same thing over and over again or who has expressed a desire for better customer service in the past. Overstock uses LivePerson, as does Hewlett-Packard (HPQ), and Estée Lauder (EL).

ANIMATED ADOPTEE. LivePerson is hoping to clean up on Wall Street, too. It projects a 30% increase in revenues this year from the $17.4 million it posted in 2004. And its stock, which hit a low of $2.28 on May 24 has since traded up 36% to end on July 5 at $3.06.

Other small, private companies like Oddcast in New York and Pulse in San Francisco offer animated characters who act as sales reps on e-tail sites, drawing from a databank of voice answers to commonly asked questions. Oddcast's "SitePal" has been adopted by many smaller retailers who can't afford staffing as many live customer-service reps as an Overstock. Depending on how many customers the animated sales rep helps, the software can cost anywhere from $500 to $15,000 per year. Software e-tailer Goldfish Software credits its animated sales rep with converting 33% more of its browsers into buyers.

Other sites are taking a less visible role in turning dumb surf into smart shoppers. They're closely watching how people navigate a site, testing out what pages or promotions work best with customer groups broken out by profile. Early in the year, Staples (SPLS) did a major redesign of its Web site, based on deep customer research on how people want to buy office supplies. Some office managers have their list, and they want to put in their order as quickly and easily as possible, while others like to browse. The trick was reorganizing everything so that both types of shoppers would be happy.

OPPOSITES ONLINE. But seller beware: Such invisible tracking carries great risk of a backlash. Research done by New York University's Stern School of Business has found most shoppers consider tracking without their consent a violation of their privacy.

In one of several studies, researchers polled students about three types of customer service: Requested, that is, when the shopper proactively seeks help. Offered, or when a salesperson asks if they need help. And imposed, when a salesperson or computer icon just starts talking about a product a shopper might be considering.

In bricks-and-mortar stores, most people preferred imposed help, followed by offered help, then requested help. For shoppers online, however, the preferences are the exact opposite, according to the NYU studies.

Why? When in a store, a customer has no expectation of privacy. But when someone is shopping online, he or she is usually at home or at work. A sales rep barging into your shopping experience can feel like an invasion of privacy. "This is a lot about expectations," says NYU marketing professor Eric Greenleaf. "You feel like it's private when you're doing it, as opposed to being in a store."

RULES FOR CHATTING. Greenleaf notes that "norms change over time. Down the road this might not feel so creepy." LivePerson argues that its software will help with that kind of an evolution because a retailer can set all its own rules for when a chat can be offered.

For example, an e-tailer could program its LivePerson software to never offer a chat to someone who has already declined one or to offer a chat only if someone has tried to search for an item several times.

Catalog and online retailer Lillian Vernon typically offers chats only to repeat customers, who likely feel more comfortable with the site and the brand. Even Overstock limits chats to about 10% of its customers, even though sales rise briskly with customers who are engaged in an interactive discussion of products. Says Tad Martin, senior vice-president for merchandizing and operations at Overstock: "We're taking the conservative approach right now. We don't want to be intrusive."

TREADING CAREFULLY. No rush, really. A recent Jupiter study showed that the bulk of customers who have bought something online were satisfied with their experience. Instead, this trend is really being driven by sites' desire to sell more to repeat customers, says Patti Freeman Evans of Jupiter.

But e-tailers are finding that getting paying customers to come back again and again through strong customer service is as important to their growth as it is in the world of shopping malls and downtowns everywhere. It's just that they'll have tread carefully, because with the Web, retailers are literally in their customers' homes and offices. By Sarah Lacy in Silicon Valley

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