Retaining Online Customers

The information economy is breeding a new type of savvy customer: educated, demanding and skeptical, with zero tolerance for wasted time or unfulfilled promises. Developing a Web presence to attract this new breed is only a starting point. Retaining online customers in an environment where they can defect to a competitor at the click of a mouse is the central challenge in evolving a Web presence into e-business. Many online ventures fail because short-sighted companies are distracted by technology issues instead of focusing on the central tenet of their business: satisfying their customers.

Integration is the nebulously defined remedy for achieving success in the digital economy. But what, precisely, needs to be integrated with what? What are the key ingredients of successful online customer satisfaction and retention?

Speed, control and convenience are the overriding principles dominating customer behaviour in the digital economy. The new breed of online customer is typically well versed in the possibilities of technology. Knowledgeable customers are demanding ones. They ask: Why do I have to give my personal information over and over again whenever I apply for a new service at the same organization? Why do I have to waste time dealing with some bored customer service rep who can’t locate my record when I just want to check the status of my order? The new breed of customer knows very well there is no good reason for such inefficiencies.

Says Bob Fletcher, vice president of, the e-business subsidiary of logistics management firm The Livingston Group, “We do customer service reports for our clients that indicate failure points. These days, a failure point is anything other than what was expected — even early delivery is considered a failure. If I said I’d deliver a refrigerator to you on Thursday at 5:00 p.m., but I get it to you Wednesday at 9:00 a.m. when you weren’t home, you wouldn’t be satisfied, would you?”


The traditional product-based business model will not be sustainable in the long-term in the evolving digital economy. A customer-centric business model is needed to attract and retain customers, and businesses need to reorganize around this central purpose. A customer-centric business produces customer satisfaction, not products. In an increasingly commoditized market, where switching costs are low and customer expectations are high, satisfying customers will be critical to a business’ survival.

It is the degree of customer satisfaction produced that is of paramount importance. Research conducted by Xerox, which has a high commitment to quality service, uncovered a significant finding: its totally satisfied customers were six times more likely to repurchase the company’s products over the next 18 months than its (merely) satisfied customers. Customers that are less than totally delighted with the service they receive do not make loyal customers. And loyal customers are needed to support a viable business: industry estimates tell us that it costs from three to seven times more to get a new customer than to retain an old one, and that for many large companies, 95 per cent of their profits come from long-term customers. The implications are profound for organizations struggling to establish their e-businesses.


When restructuring for e-business, a complex array of technology and process integration issues need to be considered, from front-end to back-end. The new customer-centred approach requires extensive reorganization of traditional IT processes, which were originally designed piece by piece around product lines or application management convenience rather than customer convenience.

Businesses risk poor customer service due to the grab bag of independent and uncoordinated applications they use to support their customers. Sales, marketing and customer service groups frequently have separate systems that slow information sharing among these groups, resulting in incomplete and inconsistent information about customers. There are often several separate applications and customer service groups dealing with different communications channels, such as face-to-face, phone/IVR, e-mail and Web-based interactions. A sales order received over the Internet may have to interact with a Web-commerce application, an inventory management, warehousing and shipping application, and an accounting system — all systems that don’t automatically communicate with one another.

Horror stories abound about firms having to hire legions of temporary workers to rekey data from a Web-based ordering system, damaging their reputations by accepting Web orders for discontinued products, and Web customers receiving multiple shipments of the same order because a single order line was out-of-stock and the system could not handle exception conditions. The concept of an integrated call centre, or Net commerce centre, which services both online and offline customers, is still in its infancy but is growing in importance as e-business develops. Says Joe Outlaw, a Gartner Group analyst: “What companies want is consistent management. If you don’t bring Internet transactions into your overall customer contact strategy, it will cause disconnects.”

Systems need to be integrated so that employees, customers and partners use the same up-to-date customer data — a monumental task that requires careful strategic planning and senior management buy-in. In the past, IT groups built integration code from scratch, hard-wiring one application to another. Many application tools, products and services are now available to ease this process, but it still remains a daunting task requiring high-level programming expertise and system knowledge. The market for application integration products was worth $450 million in 1998, according to AMR Research, and is expected to grow 50 per cent over the next few years as businesses try to link their disparate applications to their ERP and e-commerce systems.

In addition, issues of scalability and capacity dog many organization’s e-commerce efforts — especially successful ones. Ameritrade, eTrade and Charles Schwab suffered highly publicized outages earlier this year because of unexpected surges in customer demand for their Web sites. To meet unexpected spikes in demand — and stay out of headlines with more outages — leading companies are investing heavily in back-end scalability and availability. Charles Schwab, for example, monitors its online volumes daily and calibrates its system to ensure it has three to four times the daily total in excess capacity. In addition, it is now testing software that will add more redundancy in its ten back-end systems, which now handle seven million page-views per day.

Future trends will include expanding integration efforts to include data warehousing projects. Once online integration processes have matured, a logical extension will be to further incorporate these processes with data mining and decision support systems. Having a body of accurate data on customer patterns and historical trends will enable organizations to hone their sales strategies by devising programs to attract new customers through target marketing and take preemptive measures to retain “at-risk” customers.


Creating front-end interfaces with customers for order placement on the Web is now relatively easy, but the integration challenge for maturing e-businesses will lie in linking these with back-end processes. Over the next few years, businesses will have to invest in redesigning back-end order-fulfilment systems and processes, especially companies selling physical goods. As more and more businesses sell products over the Web, speedy and efficient order fulfilment coupled with customer-care processes will become a significant differentiator for successful organizations. For example, businesses wishing to sell mass customized goods over the Web along the Dell model will need to make fundamental changes to their procurement, manufacturing and distribution processes. These changes are not easily imitated by competitors and result in more sustainable competitive advantage.

But this business reconstruction may require radical change in many instances. In a recent report, the Gartner Group mapped a number of Web-commerce fulfilment pitfalls. Companies with highly automated warehouses designed for shipping large volumes in truckloads to wholesalers and retailers will find their operations ill-suited for smaller Web orders resulting from direct sales once the middlemen are cut out.

Retailers traditionally squeeze their suppliers, sometimes resulting in conflicts, but they will now need to create partnerships with them to develop efficient fulfilment mechanisms and to discourage manufacturers from selling direct to the consumer. Moreover, by selling globally over the web, many companies may not realize they will become de facto exporters, failing to consider that their back-end systems are often not equipped to handle international orders and that they are exposing themselves to the risk of violating export compliance regulation.


Getting the right people to develop an effective e-commerce strategy is an increasing challenge for organizations. Leaders need to have broad business backgrounds coupled with Internet experience and technology backgrounds. And finding the right leaders to head up web initiatives is only a starting point.

Senior management commitment to web initiatives is absolutely critical to their success. Lee Dingle, VP of interactive solutions at Cambridge Technology Partners, says, “Many people hold the title of VP of e-commerce, but they sit in either the marketing or IT group.”

Direct access to top executives is needed in order to educate them about the Net and what needs to be done within the organization to develop its potential. Increasingly, areas such as finance and operations need to get involved as a web initiative matures into more complex services such as online ordering and fulfilment. Without senior management endorsement, organizational change cannot take place quickly or effectively.

Different businesses adopt different organizational strategies to suit their Internet objectives, either spinning off separate business units or assembling cross-functional committees. United Airlines has opted for the steering committee approach in order to inculcate Internet technology and culture into all aspects of its operations. United views the web as an important success factor in its competition with other carriers — it sells 2 per cent of its tickets on the web and expects that figure to rise to 10 per cent in three years. Keeping web initiatives front and centre is necessary in the airline industry to ensure future business survival. Airline carriers have already seen dramatic changes in their industry as a result of online ticketing, seat auctions and loyalty programs. As the Internet has already impacted their core business, a unified, central approach is needed to ensure that change ripples through all aspects of their business.

Other organizations, in contrast, choose to spin off a business unit dedicated to developing e-commerce for their business. The Livingston Group started its Inc. subsidiary in January 1999. Leveraging off the company’s expertise in logistics and involvement in EDI standards development, the spin-off was formed to provide supply chain e-commerce solutions to businesses.

Recent successes include Dell Canada’s adoption of its Net*Track technology to track and trace made-to-order computers, and the implementation of ProCure, a Web-based electronic ordering and catalogue service for the Canadian Pharmaceutical Distribution Network (CPDN). was previously a business unit within the firm, and a strategic decision was made to start up an autonomous operating company in order to develop the critical mass needed for a robust e-business. Neil Barran, president of, says, “The transition has gone relatively smoothly. We maintain close relationships with our sister companies, Livingston Inc. and Livingston Healthcare Services Inc. But it’s absolutely critical that roles and responsibilities be clearly defined. In our instance, we went through a process of formalizing who does what so there is no misunderstanding. We put in formal written agreements, including service level agreements, between our organizations.”


Organizations lacking the core competencies to handle certain e-commerce functions may decide to outsource them.

As logistics management is often the most complex and problematic piece, businesses often outsource this critical component. It is here that e-commerce integration issues reach their zenith.

Says’s Bob Fletcher: “The trick is in getting all the pieces together to deliver the product. If we’re working with a manufacturer, then they may or may not do their own logistics — they may use a third party. We’ve got to figure out who’s in the network of organizations that our clients use to get value into the hands of the ultimate end-user. We’ve got to be able to work with all those parties and integrate them into the various systems and processes. You may have 28 pharmaceutical manufacturers, with possibly a dozen ERP systems among them, and several hundred hospitals with possibly a dozen procurement environments. To be successful in e-commerce, you have to understand what all the linkages are and be able to integrate the various components seamlessly because the supply chain carries transactions right from the point of order to delivery.”

A frequent motivator for many organizations entering the e-business fray is cost efficiency. “Most of our clients are using e-commerce for cost-savings; they’re not looking at it as a revenue-generating mechanism,” says Neil Barran. “If they can get access to more detailed information quicker, faster, better by streamlining and shortening the overall supply chain that any company has to utilize, this will have an immediate bottom-line effect: reducing inventory levels and reducing lead times. What’s interesting though is that although many organizations start off looking at e-business as a cost savings mechanism, if integrated and structured properly it can also result in a greater level of customer satisfaction.”

In the past, business processes and technology have been structured to serve organizational convenience, rather than customers. Businesses that cling to this model will not survive in the long run. The new breed of customer will ignore them, as at a click of a mouse they can conduct business with someone who’s organized to satisfy them.

Al Dhanji ( [email protected]) is a senior manager and lead e-business expert within PricewaterhouseCooper’s Global Risk Management Solutions (GRMS) group in Toronto. Andrzej Jablonski ( [email protected]) is a senior e-business specialist within the same group.

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