PA Consulting Group’s 4th e-retail survey indicates that the ‘early adopter’ on-line shopping segment has reached maturity and that new technologies are not providing a major impetus to sales growth. Combined with the increased customer focus on price, this is a worrying conclusion for e-tailers, many of whom are already struggling for sales volume and margin.
PA’s annual survey, assessing the current state of the on-line retail market worldwide, is carried out amongst a sample of over 1,200 of PA’s employees, representing ‘regular on-line shoppers’. In this ‘early adopter’ segment, on-line buying has now reached 95% saturation, with stable purchasing frequency, and with a growing emphasis on the price component of the on-line proposition.
Alastair Charatan, head of PA's e-retail group, comments: “These results from the early adopter segment raise concerns. Although headline e-tail growth still looks high at about 15%, e-tail is still a very small percentage of the whole market. Combined with these findings of plateauing sales and downward pressure on pricing, the outlook for future growth and profitability is limited. The problems for many e-tailers is that, if they are not making profits now from ‘early adopters’, there is little prospect of them doing so as less affluent, more price-sensitive and therefore less profitable 'follower’ segments come on-line.”
The key findings of the survey report are:
The ‘early adopter’ segment has reached maturity.
94% of our sample now purchase on-line, almost saturation level, and showing little growth over last year, compared with much faster growth in previous years
Similarly, despite high levels of satisfaction recorded, there is little increase in purchase frequency over last year; 46% still purchase infrequently (5 or less times per year), and the overall average number of transactions is static
There has been a drop in the average transaction value, from $237 (£158) in 2001 to $182 (£121) in 2002. This reflects an increase in transactions of less than $100, and a corresponding decrease in higher value transactions
There is limited channel loyalty, with little change in the pattern of spending across on-line and offline channels, and switching between channels is still commonplace.
Price-related drivers have become significantly more important for this segment.
Lower product prices were cited as a key incentive to increased on-line spending
Convenience is still the key driver for purchasing on-line (87% chose convenience as one of three factors influencing their choice to buy on-line) but the importance of sourcing cheaper products and comparing prices has risen appreciably from 42% in 2001 to 64% in 2002
Auction sites are emerging as a significant channel. 22% have bought at auction, a further indicator of the importance of ‘getting a good price deal’.
New technologies show no signs of making a step change in customers’ purchasing patterns.
Shopping via mobile phone, interactive TV and PDAs has made very limited impact in terms of take up and satisfaction of experience; there are high hurdles to overcome if these routes to market are to be a means of growing market volume
Users value basic site functionality (50% rated search facilities as the best feature) over high-tech features such as 3D and interactive options
Third party security payment schemes have also failed to make an impression, with low awareness of schemes such as Paypal and Amex Blue. Security, overall, seems to be less of an issue.
Alastair Charatan concludes: “If e-tailers are to see a step change in profitability, it is unlikely to come from a large increase in volume sales or share of market. E-tailers will need to drive down prices, examine their cost structure and improve the efficiency of their operational performance. E-tailers must also look to get the basics right, such as ensuring that the searching and on-line purchase process is slick and robust, user-testing websites thoroughly and critically, and considering carefully any investment in non-essential technological wizardry.”
For further information or a summary of the findings (due for publication mid February 2003), please contact Rod Scott
+44 (0) 20 7333 6149
123 Buckingham Palace Rd, London, SW1W 9SR
Notes on the survey:
PA Consulting Group carries out this survey annually amongst its consultants worldwide. Conducted during the period 6-17th January 2003, PA used an on-line questionnaire, resulting in over 1,200 responses from all major economies around the world.
Notes to editors:
PA Consulting Group is a leading management, systems and technology consulting firm, with a unique combination of these capabilities. Established almost 60 years ago, and operating worldwide from over 40 offices in more than 20 countries, PA draws on the knowledge and experience of some 4,000 people, whose skills span the initial generation of ideas and insights all the way through to detailed implementation.
PA builds strategies for the creation and capture of shareholder and customer value, and helps clients accelerate business growth through innovation and the application of technology. PA works with clients to improve performance, mobilize human resources and deliver change effectively, including managing major projects, and designing and implementing enterprise-wide systems and full e-business solutions.
PA focuses on creating benefits for clients rather than merely proposing them, and this focus is supported by an outstanding implementation track record in every major industry and for governments around the world. PA also develops leading-edge technology both for its clients and within its own portfolio of venture companies in areas ranging from software to wireless technology to life sciences.
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