Esp Essay

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ESP essay
This is the headline from a just-released report by DoubleClick and the e-tailing group, Inc. What I find most interesting is how this will undoubtedly make headlines among various media outlets without any serious thought into what is going on here.

First and foremost is the question of price and consumer loyalty. The impression given by such a headline is not that most people are price sensitive (we don’t need research to tell us this), but that price is the MOST IMPORTANT factor when deciding which online store to buy from.

Personally, I find this nonsense. It is true that for some people price is the most important factor, but not ALL people. This is simply a matter of segmentation.

I’m always confronted by this question when I work with technology companies, and especially engineers, who tend to think that people are completely rational and thereby purchase based on the lowest price. To confront this mistaken thinking, I ask the company who in their market has the lowest price (which they readily tell me) and then I ask why doesn’t that competitor have 100% market share.

The point is this: You can’t have price be the most important factor in consumer purchase (and loyalty) and at the same time not have the competitor with the lowest price have 100% market share.

Anyway, if the lowest price is the most important factor in consumer loyalty, than you have another problem. All a competitor has to do is come up with an even lower price and consumer loyalty should vaporate (you see, you can’t make someone loyal totally on the basis of something, like price, that can be instantly changed).

Finally, since the study was conducted using an online survey methodology, you run into an additional problem. Consumers are well known to use implicit theories to explain their behavior. So even if they are loyal to a retailer for service, breadth of products and other factors, many will attribute their loyalty to something more easily identifiable and logical, like price. Most academic research shows that the implicit theories that consumers use can be quite misleading.

So, consumer behavior is far more complicated than this headline suggests, and indeed the specifics of the DoubleClick study suggest this. Here is the essence of their findings:

* Seventy-one percent of shoppers “browse multiple online stores prior to completing a purchase.”

* Four out of ten (42 percent) shoppers “price shop a product via comparison engines.”

* Nearly half (48 percent) of the online shoppers surveyed described their loyalty to merchants across channels (store, Web, catalog) as “somewhat loyal to certain merchants based on a combination of good value, superior service and the right mix of product.”

* Seventy percent of respondents surveyed belong to a frequent buyer/loyalty program.

* More than half of the respondents (53 percent) ranked “discounts or exclusive offers for members” as the most important feature of Frequent Buyer/Loyalty Programs.

* When deciding to go back to a Web site, “online order tracking” was rated as very important by 56 percent of those surveyed.

* Shopping patterns vary by gender, with men less loyal and women more apt to register or be influenced by promotional mail.

* “Poor service” ranked most likely to deter shoppers from becoming loyal to a Web site by 41 percent of respondents.

* Rewards’ customers (those belonging to 2+ programs) are less apt to be focused on price, utilizing more features and tools to enhance their multi-channel shopping experiences.

* At least half of the shoppers surveyed indicated purchasing clothing, books, music, computerware and toys online.

* Free shipping continues to be the most important enticement to drive customers back to sites.

Read the full press release.

So, reading the above findings, would you conclude that “price is the most important factor in consumer loyalty”?

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