Online Retailers Performances Slide: Q&A With ForeSee

Apparently online retailers aren't satisfying shoppers lately. A recent study put out by Ann Arbor, Mich.-based research firm ForeSee Results reported that consumer satisfaction with e-retail fell three percent from last year. And to illustrate how bad things have gotten in the industry, the firm throws out a striking statistic: On a 100-point scale, retailers' aggregate score came in at 73. The Internal Revenue Service boasted the same score, outranking almost half of the top 100 online retailers. Even Netflix, which has the highest score of all retailers at 85, saw a one-point drop.

Not every company saw their ratings fall, though. Among those that saw gains were Kohl's, which gained six percentage points, and Costco, up three points. Others showing improvement were Target, Wal-Mart and Victoria's Secret.

Larry Freed, ForeSee's president and chief executive officer recently spoke with BNET and discussed the current trends in online retailing.

BNET: What has caused the steep decline in consumer satisfaction with online retailing?
One of the key things to satisfaction is really a result of what you get and what you expect. So when satisfaction drops, while it's possible that the sites, products, merchandise or products got worse, a lot of times it's not a result of things getting worse. They're just not keeping up with the expectations of consumers. And if you think about the issue of the economic environment and where we are today, there's obviously a lot more price sensitivity than we've seen before.

We've been doing this study for five years. The best answer for improving purchase intent in the past was not lowering prices. Obviously, it's going to have a positive impact if you do that, but usually it was more about the experience and the merchandise. But over the last six months we've seen that change quite a bit. Prices are now a number one or number two priority for a lot of these sites. Consumers are doing more research online before purchasing and doing more price-comparison shopping.

The other are points back to expectations. There really has not been a ton of innovation in the last 12 or 18 months at online sites. If you go back and think about the things we've accomplished over the last four or five years in retail, like improved improved product images, consumer-generated product reviews and improved online search, there haven't been any innovations like that in the last 12 or 18 months. That's caused a little bit of the downturn as well. Retailers have been focused a little more on the economic side of things than on the innovation side of things.

BNET: Kohl's and Costco both had significant jumps. Is it a result of those companies innovating more than their peers?
It's a little bit of improvement in their sites. Neither of them were at the top of the heap before, so they were coming from more toward the bottom of the pack, and I applaud them for that. Their marketing and their positioning is well suited for these economic times.

BNET: Historically, it seems as though brick and mortar retailers haven't done as well as their online-only counterparts. But it looks like they're gaining ground on the Amazon.com's of the world?
That's absolutely true. We still see Amazon at the top of the heap and Newegg is always near the top. But we also see some pure plays at the bottom of the top 100. But historically the pure plays really were far ahead of the brick and mortar in terms of the experience, functionality and capability of their Web sites. The brick and mortars have caught up. One really encouraging thing from my perspective is that a lot of major retailers I've talked to have said that their sites are there to support their stores. That's a good thing because the pure plays have some advantages, being all focused on the Web and not having the challenge of different inventories and shipping pricing. But the brick and mortars also have the advantage in that they do have that. They have the multi-channel capability. You can research online and buy in the store or research in the store and buy online. They're starting to take more advantage of it and making it a seamless transition from one channel to the other.

BNET: Are there any new innovations your seeing that could impact online retail in years to come?
Amazon kind of took a step forward again. They've thrown down a pretty good challenge to the rest of the brick and mortar retailers in that they created a pretty good iPhone application. There are some great things you can do on the Web when researching a purchase that you can't do very well in a store. You can get consumer-generated reviews, detailed specs, look at all different colors and compare them side by side. When you go into a store, you can touch it, feel it and try it on.

What the mobile applications have the potential to do is to bring that capability to the store. Amazon kind of beat everybody to the punch. Imagine you're walking down the aisles of Wal-Mart, and you see something you're interested in buying. You pull out your handy dandy iPhone and go to the Amazon application and see that it's $12 cheaper on Amazon. What do you do? In my mind I have this picture of a consumer walking up to a retail sales associate and holding an iPhone up to his head like a gun, saying: "If you match that price I'll buy here, otherwise I'll push this 'Buy Now' button."