Retailers and the challenge of consumer-generated online product reviews
While the crisis in financial markets is likely to exacerbate trends in the wider economy, UK consumers have for some time felt the impact of rising utility bills as well as petrol and food prices.
At the end of August, research carried out by Ipsos MORI revealed that 85% of UK consumers had become more conscious about spending money.1 This has definitely resulted in much more careful spending patterns with only 16% of consumers saying that they have not changed any of their habits.
The financial crises and increasing unemployment are likely to influence UK consumers' attitudes further over the Christmas period and into 2009.
Will consumers shop around more as a result? There is evidence to suggest that this has already occurred in some sectors. In the grocery sector, for instance, 22% of UK consumers have started to shop with discounters such as Aldi and Lidl in the past six months. Discounters are overcoming past stigmas and attracting wide strata of the population. Even among ABs, 38% who currently don't shop in discounters think that they should. A third of the population has already integrated the discounters into their grocery retailer repertoire.
Another sector where consumers have changed their attitudes and buying behaviour is fashion. Some 40% of consumers say they are now shopping much more often with UK value retailers such as Primark and Matalan - primarily because it makes their money stretch further.
What is interesting about these changes is that they are not purely driven by price. Having the right value proposition appears to be the real driving force. Just over half of all consumers (52%) believe that the products from value retailers such as Primark or Matalan look just as good as those from more expensive retailers. Aldi's positioning is all about offering a small range of good quality own label products that offer superior value for money. It is a unique positioning in the UK grocery market and one that has only recently been taken seriously by the traditional players in that sector.
Linked to this evidence of consumers becoming less loyal on the high street, might there also be a similar pattern in online purchasing?
Online sales have multiplied in the last few years. Internet penetration stands at around 70% and the lower socio economic groups which were traditionally lagging behind are now catching up fast. Broadband penetration in the UK now stands at 27% (source: OECD).
The internet has revolutionised consumers' ability to search for products and services that provide the best value for money to them. The most common reasons for shopping online are price and convenience. Both go hand in hand, as the internet has really enabled us to become so effective and efficient at comparing different offers.
But will the typical UK online consumer shop with one or with many e-tailers? There is anecdotal evidence from our clients that consumers are more loyal to e-tailers than they are when they are shopping on the high street.
Partly this difference between high street and online might be explained by looking at the logistics of online purchasing.
In the first instance consumers who wish to make a purchase online have to provide all their details to this retailer: address, credit card details etc. So trust that goods ordered will be received and that they will be happy with them has to be high in the first instance. Rather than leaving their personal details with many different retailers, consumers may be more likely to use the ones they are satisfied with and where they already have an account. It appears that there is a greater chance for promiscuity during the search phase when shoppers are comparing different products and services. This clearly presents an enormous opportunity for e-tailers.
Price comparison sites and product reviews help consumers in selecting and evaluating e-tailers. Some 51% of consumers routinely check online prior to making a purchase and 47% are using price comparison sites much more often before buying products or services. Companies such as Amazon, eBay and TripAdvisor have been at the forefront of incorporating customer reviews, but retailers such as Halfords, Schuh and Argos have started to follow. Despite the fact that website reviews are a relatively recent phenomena, only 24% of consumers do not read website reviews and ratings.
This raises the question of what information sources consumers use and whether their trust has shifted away from believing big brands to trusting their fellow consumers' communication. Networking sites such as Facebook and MySpace have contributed to a huge shift in the way we communicate over the internet. Complete strangers are chatting on social networking sites as well as in blogs and forums. Opinions originating from other consumers appear to have greater credibility. The trust we place in friends and family is naturally the highest, but price comparison sites and website reviews are the next most trusted information sources.
Retailers who have incorporated customer reviews into their websites clearly believe that embarking on the path of greater transparency is likely to increase loyalty and hence sales. Other retailers are much more sceptical and perceive this two-way communication as more of a risk than an opportunity. Their main concerns are:
- Products receiving negative reviews could result in a loss of sales and unsold stock piling up. The latter would have a direct impact on the bottom line.
- Receiving negative feedback could impact on the retailers reputation overall.
While this is, of course, possible, in reality how many products would retailers expect to be slated by consumer reviewers as complete disasters? Furthermore, retailers should plan how to measure the number of online complaints a product attracts as well as the degree to which consumers are aggrieved.
It will also be vital for retailers to plan how negative feedback can be used, and be responded and reacted to. Retailers can respond to very negative feedback immediately and collate trend data to ensure they understand what the themes of consumers' complaints are and which areas clearly receive the most negative feedback. This can then form the basis for a prioritised action plan.
And not all negative feedback is bad - it can provide companies with an opportunity to improve products and services. Lego, for example, used the feedback it received on one of it robots to improve the product and make it into one of its best selling products.
Before introducing reviews on a website, retailers also need to think of the following issues:
1) There is control over communications. Some retailers such as Amazon have experienced the impact of negative comments being removed from their website. In 2007, a gaming product received an overwhelming number of negative reviews, which, intentionally or not, disappeared from the Amazon website. The reaction of the gaming community was to accuse Amazon of manipulation on its own website as well as taking the issue into other specialist forums and blogs. The result was a PR disaster for Amazon. Dealing honestly with complaints is the only solution in instances where a product attracts many negative comments. Companies should carefully think about a communication strategy for these events.
2) Retailers should seriously consider investing in an internet monitoring tool such as Brandwatch offered by Ipsos MORI. It can monitor all conversations on blogs, in forums, news, websites and collate these into coherent reports to help companies manage their communications. So if disaster strikes retailers will be able to gauge the size of the PR problem. But such a monitoring tool can also help retailers pick up positive points that can be turned into competitive advantages.
3) Carry out a competitor analysis. Retailers should investigate the reviews that competitors are getting in order to benchmark and understand the scale of the problem or opportunity. Again an internet monitoring tool would provide the relevant data.
4) Retailers should also consider the question of what number of reviews are required to make the site appear trustworthy. Will five reviews be sufficient or does there have to be a greater critical mass? The issue about how to stimulate the number of reviews effectively is still largely unexplored. It appears that retailers incentivise consumers post-purchase to leave reviews. A small but robust piece of market research will be able to answer this question to make sure it applies to the relevant product category. For example it could be that for expensive products consumers would like to see a greater number of reviews than for a book.
5) Retailers will need to decide how to manage getting a critical mass of reviews if their product range changes frequently, such as occurs in the fashion sector. One solution would be to collect all reviews in an additional place on the home page so that consumers get an impression of overall quality of their product and services.
So how important will website reviews be going forward? Retailers should not underestimate the importance of getting their online offering right. In a survey conducted at the end of 2006 among 1,000 UK online shoppers by Ipsos MORI, 57% said they were less likely to visit a brand's high street store again if its online service was disappointing.
Retailers should put the consumer at the heart of a multi-channel strategy and pay equal importance to their online offering in terms of their brand communication, products and services as they do to their high street stores. Website reviews can help build retailer image / reputation and customer loyalty. Done properly, this strategy could result in higher profits.
1. Fieldwork 25th Aug to 3rd September 2008. The sample: 1000 UK nationally representative shoppers. Data collection: online.About the author:
|Susanne Goller is director of the Retailer and Shopper division of Ipsos MORI. To contact her, or for information on Ipsos MORI's Retail & Shopper team email Susanne.firstname.lastname@example.org.|