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The Rocky Road to E-Retail

Online buying is catching on—but catching up with our shopping habits? No, but retailers ignore the wired store at their peril.

by Parker Neils

As the countdown to the holiday buying season ticked toward Christmas last fall, the nation’s retailers were salivating over what economic forecasters were saying about online buying.

Prognosticators called for a record buying season, boosted by a predicted 40 percent jump in online retail sales over last year’s seasonal tallies.

Has the much ballyhooed revolution in wired retailing finally arrived?

Hardly. While the popularity of online buying is obviously on the rise, the hyperbole of e-commerce boosters heard in the nascent days of the technology seven years ago contrasts loudly with consumers’ overwhelming preference for walking into real stores—parking nightmares, rude clerks and all. And nothing is likely to change that anytime soon, say researchers.

The online share of the 2002 holiday retail total was pegged at just 2.3 percent—a figure some theorists compare to something between a curious consumer toe nudging the door open to a high-tech way of buying things and a whole foot making tracks to the virtual counter. If projections held, that fraction of cyber customers responsible for the whole holiday spending pie will jump to a whopping 4 percent for the season just ended.

In terms of raw dollars, the picture is this: For the second quarter of 2003, the U.S. Census Bureau reported $12.4 billion of online sales, compared to about $860 billion total retail U.S. sales in those three months.

“E-retailing has not taken off, because the chasm between two groups (innovators and early adopters) remains unbridged.”

The statement comes from a summary of a study done by a husband-and-wife team of FSU researchers published last year in The Journal of Product and Brand Management. Here’s what Ron and Elizabeth Goldsmith went on to conclude:

“As a result, the apparent mass market for e-commerce remains a future dream. Two thirds of Americans might have access to the Internet, but they are not using it to buy things—at least not in sufficient numbers.”

And the main reason?

“We know too little about the differences between the enthusiastic innovators who buy goods online and the rest who are happy to look but do not buy.”

The Goldsmiths are among a number of researchers nationwide who study the latter-day phenomenon of online buying. Curiously, despite the undeniable fact that consumers who buy goods and services online represent the fastest growing crowd of shoppers on the planet, precious little is known about them, the Goldsmiths say.

Such a paucity of demographic information contrasts with a rich knowledge of old-hat consumer behavior, e.g. hitting the malls and mail-order catalogs. This disparity amounts to costly ignorance on the part of retailers who are spending loads of cash trying to capitalize on what everybody sees as the vast potential of the Internet marketplace. Today’s new breed of e-retailers knows that the age-old rule that applies to doing business the old fashioned way also applies to e-commerce: Learn who your customers are and what they like—or watch your business sink like a rock.

Ron Goldsmith, the Richard M. Baker Professor of Marketing within FSU’s College of Business, describes himself as a consumer psychologist. He’s co-author of Consumer Psychology for Marketing (International Thompson Business, 1998), and three book chapters on marketplace innovation and more than 100 articles on consumer buying habits and related subjects.

Goldsmith’s frequent research partner is his wife Elizabeth, a consumer economist and professor of textiles and consumer sciences within FSU’s College of Human Sciences. Like Ron, she also is interested in helping the merchants know their customers, but she focuses as well on what customers need to know about buying.

Working from somewhat different angles in different disciplines, the Goldsmiths are trying to refine their answers to the marketing question of the young Internet age: Who’s buying online?

A corollary of nearly equal import is: Who’s not buying online and why?

Both Goldsmiths agree that despite merchants’ thirst for answers, to be successful in tomorrow’s economy, they will have no choice but to go online. “It’s the wave of the future,” Elizabeth Goldsmith said, explaining why universities, or at least the Goldsmiths, feel obliged to research, report and teach it.

Despite the bumps in the information highway, e-commerce is on a steady course to reach a certain maturity before too long, the Goldsmiths say, which means online buying will figure increasingly important to retailers’ bottom lines.

The New York Times reported last November that 65 million U.S. households were online, and 25 to 30 million were buying online. As more of the 65 million online users get into the habit of shopping by computer, some experts expect the current 2 to 4 percent will become 10 percent in five to 10 years. That rate of increase may rise even faster as computer users take advantage of improvements in safety, convenience and simplicity, some observers say.

Right now, this growth fits the pattern of what marketers call innovation diffusion, Ron said, the process by which new ideas and products get accepted in a marketplace—or don’t. Despite its failure to reach early projections, he said that the growth of e-commerce is “on schedule.” He predicts that online sales will eventually settle down to the same kind of growth rate that all of retail is enjoying (about 3 percent annually at the end of 2003).

A specialist in studying what motivates consumers to buy anything in the first place, Ron says that decades of marketing research have revealed a pattern that is gradually unfolding in the budding world of online buying. No matter how anything gets introduced into the market—whether conventional or in cyberspace—once there it has to run a highly predictable gauntlet of consumer tastes and habits to succeed, he said.

New products or technologies always must first pass muster before “innovators”—people who are quick to test drive new things—and then move toward what the market really craves—the eyes of mature customers who feel comfortable with innovations and their buying habits. In the marketing jargon, this is the “late majority” crowd, says Goldsmith.

A primary reason for the delayed arrival of the e-commerce revolution, they believe, is that the true pioneers in Internet shopping—the innovators—are still a small crowd. Innovators tend to be venturesome people who have enough money to take chances and enough sophistication to figure out how to use new technology. They also generally have enough influence on trends and tastes that other shoppers eventually follow their lead.

But by all accounts, right now these “fire starters”—innovators—make up only about the first 2.5 percent of the buyers, the Goldsmiths say. If merchants are going to make any money on the Internet (most of them aren’t making much yet, or are in fact losing money, according to the Goldsmiths), they need to attract the next group of consumers, the so-called “early adopters.” Right now, this group—which eventually develops into the “late majority” of mature online buyers—makes up about 13.5 percent of Internet customers.

To do this effectively, of course, retailers need to know all they can about who they need to pitch their online services to, and how best to do that. If merchants can figure out who the early buyers are and then make them repeat buyers, they’ll be able to use them to recruit larger groups of customers, Ron said. This will be the bridge between “innovators” and “early adopters” that’s sorely needed, he said.

So just what have the Goldsmiths learned about online customers?

Surprisingly, it doesn’t much matter how old they are or which sex (although men and women are interested in different products: women buy more clothes and men buy more electronics), and ethnicity and income don’t make much difference either. One recent Goldsmith study of online shoppers, in fact, found no such demographic differences, the very distinctions most marketing researchers look for first.

The only important differences the Goldsmiths have found so far between online and never-online (so far) shoppers are in their general habits, attitudes and, to some extent, personalities. Internet shoppers, Elizabeth said, are consumers who most likely are going to be using the Internet anyway.“Buying is (simply) another thing to do on the Internet,” she said. “It’s almost less linked to shopping than related to being online. They just enjoy being online, and shopping is another outlet for them.”

In several surveys, the Goldsmiths have asked consumers about their shopping—how and where they do it and how they feel about it. They found that the ones who shop on the Internet are more confident than the others that it’s a safe way to buy things.

The never-or-rarely-online shoppers are afraid of the Internet, Ron said. They say they don’t know how to be sure the money will go where it should, that their privacy and control will survive and the products will be delivered as promised. Online buyers do have that confidence, the surveys showed, and they say that kind of shopping is fun, fast, easy and convenient.

On one point, both online and offline shoppers agreed. Both groups said they thought online buying saves money (although the specter of Internet taxation could dampen that opinion before long—see opposite page). Whether the prices are better online or they’re not, the Goldsmiths do not predict that stores will ever disappear, surrendering the bulk of retail sales to the Internet.

“Everybody will keep shopping in stores, catalogues, on phones, everything,” Liz Goldsmith said. “Some people are totally online, but most are a combination.”

Will brick-and-mortar stores be hurt by the competition from the Internet? “Not if they’re smart and have an online store, too.”



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