Forwarded From: darek milewski [darekm@cmeasures.com]
DO WEB SHOPPERS WORRY MORE ABOUT PRICE THAN SECURITY?
The first time Tom Bruno bought something online was six months ago,
shortly after his apartment was broken into and more than 300 of his CDs
stolen. "I had some old, obscure stuff I couldn't just go pick up at Tower
or Sam Goody," Bruno says. "Plus it's expensive to replace hundreds of CDs
at once, so I thought I'd check out the prices and selection on the
Internet."
So far, the 28-year-old Web designer from West Hollywood (Calif.) has
replaced about half of his stolen collection -- and he hasn't had to leave
home to do it. Rather than drive all over Los Angeles looking through used
CD bins or pay $20 per disk at chain music superstores, Bruno now prefers
to surf the cyberaisles of CDnow.com. "I'd never bought anything [online]
before because I was a little nervous about giving out my credit card
number. But the prices were so much cheaper and the selection so much
better that I got over it pretty quickly," Bruno says. "I figured it
wasn't any worse than giving my [credit card] number over the phone to buy
movie tickets."
Like Bruno, more and more online shoppers are worrying less about the
security of billing information they submit via the Net and more about the
price of what they're buying. In other words, they're starting to act a
lot like normal shoppers. The positive news for online retailers is that
the hordes of shoppers they expect to see one day will probably show up.
Estimates are that online shoppers may spend as much as $37.5 billion a
year by as early as 2002. The downside may be that these shoppers will
expect retailers to compete on price, which could undercut the power of
Web merchants to charge more than stores do in return for providing
convenient shopping online.
That's the view of the future that emerges from a new, joint study by
Internet market research companies Jupiter Communications and NFO
Interactive. The study, which combines a quarterly survey of 50,000 online
and offline households nationwide with follow-up surveys of 3,000 online
households and 2,500 individual customers, shows that 77% of "browsers"
(defined as those who visit commerce sites but have never purchased
anything) rank lower prices as the No. 1 incentive that would get them to
buy online. Tight security of billing and credit card information comes in
No. 2 on the list of concerns, with 65% of respondents saying it's a key
factor for them.
"Security is no longer the online user's only concern," says Jupiter
analyst Evan Cohen. "Demand for price discounts is also paramount.
Aggressive pricing, such as discounting high-volume items, helps get
people over the first hurdle of just coming in the door. I wouldn't advise
online retailers to slash prices across the board, but strategic
discounting can definitely help convert the non-buyer."
Julie Wainwright, president and CEO of online video retailer Reel.com in
Emeryville, Calif., agrees. Last August, as Titanic fans waited in line
outside stores to buy the home video of the blockbuster movie for $29.95
or $19.95, Reel.com was selling it for $9.95. The strategy behind such an
offer, traditionally known as a "loss leader," was to attract customers
who would buy other items during the same visit and also become return
shoppers. "People needed a compelling reason to try our site," Wainwright
says. "And what we found was that aggressive pricing gave them a big
enough incentive to change their shopping patterns." As a result of the
Titanic offer, Wainwright says, 260,000 new customers showed up, nearly
tripling her client base -- and 15% bought videos in addition to Titanic.
By the end of September, 25% of her new clientele had become repeat
purchasers.
If Web shoppers are taking security more for granted, part of the reason
is habit. "The highly publicized successes of online stores such as
bookseller Amazon.com and Cdnow.com, as well as the overall growth in the
online shopping market, have provided a benchmark level of comfort for
non-buyers that increases with time spent online," Cohen says.
"Whenever a new technology emerges, most people act on their hypothetical
fears," adds Bernadette Tracy, president of the New York-based Internet
consumer marketing firm NetSmart-Research. "We saw this with ATM cards 12
years ago, and now we're seeing it with the Internet. People will try
online shopping out first with a small purchase, usually less than $20,
and if there are no bad repercussions, they become comfortable buying more
expensive items more frequently."
Even so, Tracy argues, security remains a big issue for people until they
find that comfort zone. "It's true that security concerns are evaporating,
but they still remain the main deterrent among non-buyers," she says.
Tracy's recent study of 1,000 household Net users nationwide shows that
about 50% of non-buyers cite security concerns as their main reason for
not making purchases. Only 10% cited high prices as a deterrent -- even
less than the share who cited as a drawback the inability to see the
product, or difficulty with ordering.
Still, Tracy has noted a trend that seems to square with the Jupiter
results. "Security is still an obstacle especially for those I call late
adopters and newbies," she says. "But I've discovered that these concerns
dissipate the more convenient and compelling the merchandise. I don't see
saving money as a key motivation because we're living in a time-starved
society where time is almost as -- if not more -- important than money."
Perhaps the answer is that the keys to successful Web retailing will be
convenience --plus pricing. "Convenience and selection play a role in
attracting customers, but I think the first reason new shoppers go online
is to compare prices and find the lowest one they can," says Reel.com's
Wainwright. "As far as getting new people to buy online, price is a major
factor. But as far as getting them to keep coming back, quality and
service can't be ignored."
Back in West Hollywood, Bruno is busily proving the theory that successful
Web retailing requires a combination of all three. He figures that if he
lives on jujubees and macaroni and cheese, he can probably replace the
rest of his stolen CD collection within a year. He also considers himself
a more savvy shopper both online and offline than he was six months ago.
"I usually spend more [at CDnow.com] than I intend to, and I usually buy
something that's not on my list," he says. "But I get to listen to
practically the whole album if I want and I think I'm getting as good a
price -- if not better -- than anywhere I used to go."
By Stefani Eads
Staff Reporter
Business Week Online
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Received on Sat Oct 24 08:57:24 1998