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How Do Customers Judge Quality in an E-tailer? Online retailers must distinguish themselves

in three aspects of a transaction: customer interaction with the

Web site, delivery of

the product and ability to address problems

when they occur.

Joel E. Collier and

Carol C. Bienstock

E onsumers' ability to go online to search for and purchase products has dra-matically changed the way organizations are managing customer relationships.E-commerce has effectively minimized two of the biggest hurdles to providinga quality experience in a retailing environment. First, it has minimized "het- erogeneity" by providing a far more consistent experience to every customer. Unlike a

service employee, a Web site never arrives late to work, and it is never in a bad mood or

inattentive. A Web site never forgets to sell related products or keep records of previous

purchases along with customers' purchase preferences. (Though e-commerce has reduced

some of the heterogeneity in retail experiences, it has not eradicated it. Web sites can lose

server connections and experience technical problems that can have a negative impact on

customers.) E-commerce has also reduced "perishability" in the retail experience by allow-

ing shopping and product purchases 24 hours a day, seven days a week. With so many

customers who consider themselves to be "time starved,"1 online organizations are now al-

lowing the customer to decide when a transaction will occur.

E-commerce clearly has some advantages over brick-and-mortar retailing, but how does

one online retailer distinguish itself from another? Early research in e-commerce projected

that online retailing would spiral into a never-ending price

war, while recent researchers have discovered that cus-

tomers are more likely to pay higher prices to online

retailers of high quality that they trust. 2 We must ask,

How do customers evaluate quality with online re-

tailing? What are the specific aspects of an online

transaction that customers value and use to distin-

guish one Web site from another? We explored these

issues by surveying customers who had recently en-

gaged in an online retail transaction to determine

how they evaluate the quality of their experiences

with online retailers. The results demonstrated that

customers' perceptions of quality and satisfaction

with online purchases depend upon three things: in- teraction with the Web site, delivery of the product

and how prepared retailers are to address problems

Joel E. Collier is an assistant professor at Mississippi State University's College of Business and Industry in the Depart- ment of Marketing, Quantitative Analysis and Business Law Carol C. Bienstock is an assistant professor of marketing at Radford University. Contact the authors atjcollier@ cobilan. msstate. edu and cbienstoc @radford.edu.

FALL 2006 MIT SLOAN MANAGEMENT REVIEW 35Illust ration: Wihael Morgensternitheispot.com

when they occur. Of the three, product delivery has the strongest influence on customers' satisfaction and future purchase inten- tions. (See "About the Research.')

Interaction with the Web site A retailer's Web site is the primary contact point in an online transaction, where customers can ascertain a great deal of infor- mation about an organization's attention to detail and emphasis on customer satisfaction. If a Web site is hard to use and visually distracting, customers will often switch to another retailer that makes the shopping experience easier. Five attributes influence how customers evaluate the quality of their Web site interactions.

Ease of Use When customers access a retailer's Web site, they often find that no formal instructions are provided. Instead, online retail settings frequently require customers to learn by doing. This means that a Web site must be extremely intuitive and easy to use, regardless of how much computer experience a customer has. In an online setting, customers associate ease of use with freedom from significant mental effort.

One of the strengths of online retailing - endless shelf space - can quickly turn into a weakness if a Web site is difficult to use. Customers want easy-to-use search engines that allow them to find products quickly. For instance, Amazon.com Inc. has a wide variety of products spanning numerous product lines. If custom- ers are not given a way to quickly narrow choices down to an acceptable number, they will turn to other online retailers and/or brick-and-mortar retailers for their product purchases. 4 Best Buy Company Inc:s Web site is a good example of how to easily allow patrons to search for a product. Online customers are allowed to search for products based on category and are then allowed to further refine their search within each category based on relevant product attributes such as brand name, price range and types of processors. Best Buy allows customers to a find a product with the fewest "clicks" possible. Ease of navigation is also extremely important. Without it, customers can get lost and could ulti- mately leave the Web site in frustration. Finally, a retailer's Web site should prompt for missing information or alert the customer when an error has been made.

Privacy Customers want to know that their Web site interactions are private and their information is safe. For example, customers must feel assured that credit card information is secure and pro- tected from potential hackers. Providing recognized Web assurance seals from reputable security organizations such as VeriSign Inc. and TRUSTe will often quell customers' security concerns and influence a customer's decision to make a purchase with an online retailer.5 For example, in an effort to promote online security, Google Inc. has just introduced Google Check- out, a Web site where patrons enter their personal information

and credit card numbers and then can purchase items through sponsored retailers. Google initiates the transaction but does not share customer information with the retailer's Web site, thus add- ing further security to online purchases by limiting the exposure of sensitive information to retailers.

Not only are customers concerned about privacy issues from outside threats such as hackers, but they are also concerned about online retailers sharing their personal information. There is no quicker way for a retailer to raise the ire of online customers than to sell e-mail address information to other companies that use these addresses to send spam. Customers generally feel there is an implicit agreement with online retailers that transaction and profile information will be protected and will not be shared. This implicit agreement is the foundation of trust between online re- tailers and potential customers.

Simple Design The design of the Web site - text, format, style and colors - is extremely important in the facilitation of an online transaction. It is equivalent to the atmospherics in a brick-and- mortar store. Customers want a Web site that is visually pleasing but not distracting. Excessive use of animation, flashing colors and scrolling words can take away from the shopping experience. Additionally, retailers must be aware of text size and font along with colors that are conducive to reading. For instance, red letters on a blue background and blue letters on a red background are extremely difficult to read. Online retailers must be mindful of how easy the Web site is to read and must ensure proper spacing between columns and lines of text.

Online retailers also need to include both detailed descrip- tions and visual representations of products. Customers often need to see the object to verify and justify a purchase decision. Thumbnail images are an increasingly popular technique with many retailers that offer a large variety of products. Retailers such as Lands' End Inc. have added a "try it on" function that allows the customer to see a clothing item on a mannequin that has their individual measurements. With this function, customers can ac- tually view how the clothing will look on their own body type before purchasing the item.

Consistency and Flexibility Reliability or consistency of a Web site's function is necessary in order to build and maintain an online customer base. Customers use phrases such as "this Web site is al- ways down" and "it's never working" after only a few visits to a Web site that has reliability issues. Online retailers need to be mindful that a Web site that experiences problems, thus preventing custom- ers from shopping and purchasing products, is the equivalent to putting a "dosed" sign on a brick-and-mortar store.

A Web site's applications and links must also work properly. Hyperlinks should not lead to dead ends or fail to carry the cus- tomer to the desired Web page. In a conventional brick-and-mortar

36 MIT SLOAN MANAGEMENT REVIEW FALL 2006

store, this would be the same as

posting a sign directing customers

to the men's department but actu-

ally leading them to housewares.

Hyperlinks that fail to work or

work improperly can have a tre-

mendous influence on customers'

evaluations of quality.

An online retailer needs to be

mindful of providing a consistent

service that is flexible enough to

appeal to what may be widely dif-

fering types of customers in their

target markets. To appeal to di-

verse elements of a retailer's

target market, a Web site must,

for example, accommodate

multilingual translations. Addi-

tionally, a Web site must be able

to adapt to numerous types of

users, old and young, technologi-

cally sophisticated and unso-

phisticated. The flexibility of an

online retailer is also revealed by

the billing and delivery options

provided. For example, online re-

tailers need to provide payment

options that include different

types of credit and debit cards as

well as allowing customers to

choose alternative billing ad-

dresses for product shipments.

Good Information Managers of on- line retail operations must ensure

that information on the Web site

is accurate and updated. Display-

ing products that are sold out,

Sbutte Rsac ' I

Our conclusions in this article are based upon a survey designed to assess customers' evalua-

tions of their last online retail experiences. The survey took place in a major city, where

respondents were recruited and prescreened. To qualify for the survey, all respondents had to

have previously completed an online transaction with an e-tailer. Online auction sites such as

eBay Inc. did not qualify as an online e-tailer for this study. Respondents were asked to re-

member their last online transaction and respond to questions in four areas.

The first area asked questions that specifically related to the interactivity of the customer

with the e-tailer's Web site. This section asked questions about ease of use, navigation, search

engines, privacy, Web assurance seals, Web site design, graphics and print quality. This sec-

tion also asked about reliability: how often the site crashed, the accuracy of information

posted and the objectivity of the information. Customers were also asked about their percep-

tion of waiting and how it influenced their quality evaluation of the Web site and e-tailer.

The second section asked customers to evaluate e-tailers based on delivery of the product

purchased. In this section, questions of order accuracy, order timeliness and order condition

were asked of patrons who had completed an online transaction. An e-tailer's ability to ac-

commodate flexible delivery dates and rush orders was addressed in this section. Customers

were also asked about the care with which items were protectively packed for shipment.

The third section asked customers about failures that occurred during online transactions.

Of the 338 respondents, 189 noted some problem or failure with their last online transaction.

We asked respondents about several aspects of the interactions that took place between the

e-taller and the customer when these problems occurred. Questions were asked about the

company's concern and ability to resolve the issue. Similarly, we asked if the e-tailer honestly

communicated with the customer about the service failure. This section addressed how

quickly the e-tailer responded to the problem and how easy it was to voice a complaint.

Finally, customers were asked about the resolution of the problem and whether or not they

received compensation and the outcome they felt they deserved.

The fourth part of the survey addressed overall customer satisfaction and the intentions of

the customer to patronize the e-tailer in the future. All four survey sections used Likert scale

questions formatted as 1 = Totally Agree to 5 = Totally Disagree. Among the respondents to the

survey, 52% percent were female, with an average age of 25. The results of the survey were an-

alyzed using structural equation modeling to discover which factors had the strongest effect

on satisfaction and subsequently on intentions to patronize the online retailer. While Web site

interactivity or service recovery efforts were significant predictors of customers' satisfaction,

the outcome (delivery) of the online transaction had the strongest impact on satisfaction and

intentions to purchase from an online retailer in the future.

providing inaccurate price information and listing incorrect

product delivery information are just some of the issues that can

cause customers to become dissatisfied with an online retailer.

The frustration that customers feel when they are charged an

incorrect price in a brick- and- mortar setting is compounded in

an online setting. After all, no employees are readily available to

answer questions on a Web site.

A retailer's Web site must fully inform customers of all policies

and procedures, along with any changes that have occurred. Pur-

chasing products online involves evaluating information away

from a traditional brick-and-mortar store context to determine if

a product is worth purchasing. Out-of-date or inaccurate infor-

mation in this context will lead to customer distrust of the online

retailer, and ultimately to defection.

Delivery of the Product Customers initiate an online transaction in order to receive a prod-

uct. Though the interactivity of the Web site is very important, the

most important aspect of the quality of the online retail experience

is the delivery of the purchase. When a customer purchases a prod-

uct online, an implicit contract is made. There is an assumption

that an online retailer will deliver the product purchased in the

manner agreed upon on the Web site. In a brick-and-mortar set-

ting, customers have little interest in how a product was delivered

FALL 2006 MIT SLOAN MANAGEMENT REVIEW 37

E-tailers that establish a foundation of delivering products in a timely manner could buffer the effects of future delivery faures, as customers believe this represents a one-time exception to a normally excellent delivery record.

to the store. However, when delivery is made directly to a custom- er's home or business, customers are concerned with both how and when the delivery will be accomplished. The fact that certain on- line retailers use well-known and trusted carriers, such as United Parcel Service Inc. and FedEx Corp., has been shown to influence a customer's purchase decision.

Obviously, the delivery (or not) of the product at the end of the transaction plays an extremely influential role in customer intentions to use an online retailer in the future. A customer who has a bad experience with a product delivery is much more likely to turn to a different online retailer for future transactions. Three aspects of product delivery significantly influence customer eval- uations of the quality of an online retail experience.

The Timeliness of the Order Customers increasingly want a shorter time frame between when they place an online order and when they receive the product. Many customers view themselves as "time starved" and will pay premium prices to a have a product delivered on a next-day or two-day schedule. One of the fore- most ways to disappoint an online customer is to make him or her wait for delivery of an item past a promised date. Not only does late delivery cause a sense of anxiety, but customers experi- ence a growing sense of dissatisfaction with every day that an order is delayed.

Online retailers are learning how to offer alternatives to short delivery schedules by offering free shipping for a certain mini- mum purchase amount. These offers of free shipping are usually accompanied by an extended delivery date, such as one to two weeks. If products are delivered prior to these expected delivery dates, customers often develop perceptions of high quality. On- line retailers such as Amazon.com, Barnes & Noble and Circuit City have adopted such free shipping options while still giving customers who desire them shorter delivery options.

Customers who purchase from online retailers are frequently quite sensitive to product delivery issues. That was very clearly demonstrated in our study, which found that order timeliness had the strongest impact on customer quality evaluations at the outcome or conclusion of an online transaction. Customers have high expectations for product delivery and little tolerance for failure. Online retailers that can establish a foundation of deliver- ing products in a timely manner will not only produce higher satisfaction levels, but could also buffer the effects of future deliv-

ery failures, as customers believe that this represents a one-time exception to a normally excellent delivery record. Delivering products in a timely manner not only to meet but exceed custom- ers' expectations should be an important concern for all managers of online retail operations.

The Accuracy of the Order Since online customers take on some of the roles traditionally performed by a brick-and-mortar retail employee, customers have high expectations that they will receive the exact product they ordered and nothing they did not order, delivered to the desired location, and that they will be billed the correct amount. When customers receive a partially or inaccu- rately filled order, they not only feel a sense of frustration, but also the aggravation of having to contact the online retailer to try to resolve the problem.

Receiving an inaccurate order only serves to reinforce a percep- tion of incompetence on the part of an online retailer. In the customer's mind, he or she has made the effort to place the order, and the retailer needs only to pull the order and ship it. Thus, online retailers must pay attention to detail if they want customers to be satisfied and return to their Web site for future purchases.

The Condition of the Order Customers of brick-and-mortar stores are very particular about not choosing damaged merchandise or merchandise in damaged packaging. This same sensitivity re- garding the condition of the product and packaging applies to customers shopping online. If a package arrives with a damaged shipping container, the customer has an understandable concern that the merchandise inside the box might be damaged as well. Perception is often reality in the mind of a customer, and retailers need to understand that a product must arrive at the customer's home as if it were just taken off the showroom floor.

Online customers are adamant about receiving products that appear similar to the visual representation on the retailer's Web site. Retailers must ensure that durable and especially perishable products such as food items or plants are delivered in the same condition as advertised on the Web site. That means that retailers need to ensure proper refrigeration or other maintenance of items while they are in transit to the customer. Online retailers must make sure that the "final mile" of the delivery is not also the final mile in the life of a product. For example, online florists such as FTD.com and 1-800-flowers.com have taken measures to ensure

38 MIT SLOAN MANAGEMENT REVIEW FALL 2006

the good condition of the product delivered and the satisfaction of

the customer by guaranteeing that flowers will stay fresh for seven

days after delivery or the customer's money will be refunded.

The care that online retailers exhibit in packing items for ship-

ment is also important. It is better to be overly cautious than to

risk a customer opening a package to find it damaged because of

careless packing or carrier handling. Customers who can see how

an item was insulated against the wear and tear of travel will have

more confidence that they will receive undamaged products

when they make future purchases.

Product damage often results not from the online retailer's

packaging, but from the carrier's handling of the order. Regard-

less of this reality, customers of online retailers feel that the

retailer is the one that is responsible. They made a purchase with

the retailer, and they expect the retailer to ensure that the product

arrives undamaged. Retailers must be aware of this and convey to

their carriers the importance of this issue in building and main-

taining relationships with customers.

Addressing Problems When They Occur The last aspect of the online retail experience that significantly

impacts customers' quality evaluations is a retailer's ability to re-

cover from a service failure. Of the online shoppers we surveyed,

more than half noted a problem with a previous online transac-

tion. Previous research has observed that the physical separation

of buyers and sellers can heighten the sense of anxiety associated

with a transaction and influence the criteria customers use to

evaluate service quality7 . Being prepared when a failure occurs is

essential to building and maintaining customer relationships. If a

customer is dissatisfied and pursues a recovery measure, an online

retailer may only have one chance to satisfy the customer. There

are essentially no switching costs in an online retail context; thus,

if a customer leaves a transaction dissatisfied, he or she is only one

click away from another retailer.

Online retailers must be prepared to take proactive steps to

prevent or minimize the dissatisfaction that results from a service

failure because failure to do so will ultimately influence a cus-

tomer's future purchase behavior. The recovery from service

failures in online contexts is an area that has attracted relatively

little attention among online retailers. The focus has been pri-

marily on the Web site interactivity and delivery of the product.

That lack of attention to recovery issues is evidenced by the fact

that significant numbers of customers exhibit dissatisfaction

with online recovery attempts. 8 Our study shows that customers

of online retailers are concerned with three different aspects of

service recovery.

The Opportunity to Talk to a Person Online retail customers who

have experienced a problem will attempt to resolve it in one of

two ways. Some customers look for a resolution on the retailer's

Web site, by looking at frequently asked questions, online tutori- als, and e-mail addresses of the help desk to resolve the problem.

They do not actively seek human interaction; in fact, they would

rather avoid it. On the other hand, some customers want to

speak to a person to resolve a problem. When problems occur,

these customers are more than willing to give up their role as a "partial employee" and want the online retailer to take full re-

sponsibility for the resolution of the problem. Sending an e-mail

to a nameless help desk, which may take up to 48 hours to re-

spond, is not a viable option for these customers. Generally, when a problem occurs, they want the assurance of talking to a

person who they know is addressing the problem and doing so

quickly. To address this issue, online retailers such as computer manufacturer Dell Inc. and networking manufacturer Linksys

offer customers the opportunity to talk with a technical support

representative by phone 24 hours a day, seven days a week. Both

companies also offer customers the opportunity to chat online

with a representative. Dell and Linksys are making every effort

to enable customers to seek help in the manner that best meets

their specific needs. Providing numerous methods for customers to provide feed-

back and report problems is essential to improving the quality of

a retailer's online service operations. If a customer experiences a

problem and cannot find a suitable method to contact the re-

tailer, the company risks losing the customer, other customers

(through word of mouth) and the opportunity to prevent future

service failures. Providing online or call center help to address

service failures is only the first step, however. Online retailers

must make the feedback process as easy as possible, then follow

through to fully resolve the problem. E-mail inquiries that receive

no response or long waits in a call center queue will only serve to

intensify the dissatisfaction a customer is already feeling. Letting

customers speak their minds in a comfortable setting is the first

step, but without follow-up to customer feedback, it's just a

wasted effort on the customer's part.

Fairness of Policies and Procedures An online retailer should

make sure its policies and procedures are fair and clearly stated

so that the customer knows what to expect if a failure occurs.

Online retailers must ensure that customers do not incur ad-

ditional expenses because of the retailer's mistakes. For example,

if a wrong item is sent to a customer, the retailer should pay the

return shipping costs. Customers want fair procedures that are

clearly stated before a purchase is made. That includes know-

ing the process for returning items and receiving refunds or

credit when customers change their minds. L.L. Bean Inc.

clearly states on its Web site that if a product does not give

100% satisfaction in every way, a customer can return the item

at any time, offering detailed steps on what to do to get an ex-

change or refund of a purchased item. Customers know upfront

FALL 2006 MIT SLOAN MANAGEMENT REVIEW 39

that L.L. Bean is committed to ensuring that customers are

happy with their purchases.

If an online retailer contracts with a third party for any of the transaction or delivery processes, it should be the retailer's, not the customer's, responsibility to follow up with the third party to resolve a service failure. Online customers have no interest in dealing with an additional party in the transaction. Policies and procedures that are not fair and clearly stated can erode trust in a retailer, because customers feel they were not able to make a

truly informed purchasing decision.

Compensation and Apologies Despite online retailers' best efforts, problems can and do occur. In service failure situations, online retailers must understand the importance of taking additional actions, beyond resolving the problem, to satisfy customers. For example, the retailer might need to offer monetary compensa- tion, vouchers for free products or perhaps simply an apology.

Oftentimes, customers just want online retailers to admit that it was their fault and apologize for the service failure. The expense of an apology is minimal when compared to the future loss of the revenue stream from a dissatisfied customer.

Though many customers may be satisfied with an apology

for the service failure, some service failures and some customers require compensation, financial or otherwise. For example, if a customer places an order with a retailer, requests a seven- to 10-day delivery and fails to receive the order in the requested time period, the customer should not be penalized for the re- tailer's mistake. Many online retailers will resend an item that failed to be delivered, but will make the customer wait another seven to 10 days before the item arrives. The customer could therefore be waiting more than 20 days to receive the order. Very few customers would initiate a transaction with an online re- tailer if they knew it would take three weeks to receive the item. Online retailers need to be mindful of the extended waiting that has already occurred and provide express delivery of an item

that failed to reach the customer the first time. This especially applies to customers who have paid a premium price for a short delivery time. Another form of compensation might be for the online retailer to provide merchandise discounts or free ship-

ping on future orders.

SEVERAL IMPLICATIONS FOR THE FUTURE of e-tailing can be drawn from our findings. First, because of the overwhelming impor- tance of the outcome of an online retail transaction to customers, it is not necessarily a question of e-tailing versus brick-and-mor-

tar retailing. Instead, in the case of retailers that maintain both online and brick-and-mortar retail environments, in order to enhance customers' perceptions of quality, these two environ- ments must be managed so that they are seamless to the retail

customer. For example, a customer who purchases a microwave

from Lowes.com and is not happy with the color must be given the option of exchanging the appliance at a Lowe's Companies Inc. brick-and-mortar location. Similarly, if a retail customer finds a microwave model to purchase in a Lowe's brick-and-mor- tar location, but the location does not have the color desired in inventory, the customer should be given the option of placing an order from Lowes.com and experiencing either home delivery or in-store pickup. To the extent that this seamlessness is success- fully accomplished, retail customers will benefit by having multiple avenues to achieve a successful retail outcome. Thus, the e-tail format, as well as the brick-and-mortar retail format, will benefit from customers' perceptions of quality. In addition, this seamlessness enhances a retailer's ability to manage service recov- ery, which also increases customers' quality perceptions.

Second, for retailers that confine their format to the online environment, such as Amazon.com, in the long term, the most successful will be those that continually strive to enhance the quality of their customers' interactions with their Web sites, the outcome of their retail transactions and successful resolution of problems when they occur.

Finally, our findings imply that although indicators of trust in an online retail environment may be somewhat unique due to the physical separation of buyer and seller, the fundamental nature of trust remains the same. Customers will continue to patronize high-quality online retailers that they trust.

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40 MIT SLOAN MANAGEMENT REVIEW FALL 2006

TITLE: How Do Customers Judge Quality in an E-tailer? SOURCE: MIT Sloan Management Review 48 no1 Fall 2006 PAGE(S): 35-40

WN: 0628807228011

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