Amazon Soars; Netflix Plummets in ForeSee Holiday Study

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ANN ARBOR — The customer experience analysis firm ForeSee has released the results of its annual Holiday E-Retail Satisfaction Index, showing that after seven years spent jockeying for first place in the Index, Amazon and Netflix are headed in opposite directions.

Amazon climbed two points to score 88 on the study’s 100-point scale, registering the highest score from any retailer in 14 consecutive studies. Meanwhile, Netflix’s well-publicized blunders caused its customer satisfaction to plummet by seven points and 8 percent to 79. After years of being separated by a point or two, Amazon and Netflix, which are increasingly in direct competition as Amazon expands into streaming video and rentals, are now separated by nine points in terms of satisfaction, a gulf that may be too wide for Netflix to overcome anytime soon.

This week’s report provides the first scientific quantification of customers’ experience with Netflix since its missteps earlier this year. With its satisfaction decline, Netflix has gone from satisfaction superstar to merely average, matching the Index’s aggregate score of 79 (up one point from 78 in the 2010 holiday shopping season). Netflix saw scores drop in every single element of the website that ForeSee measures, including site content, site functionality, merchandise, and prices.

“Netflix totally misread its customer base and is paying the price, damaging its brand among both consumers and investors,” said Larry Freed, president and CEO of ForeSee. “Raising prices by 60 percent and splitting the baby into separate DVD and streaming services totally undermines Netflix’s cost and convenience advantages. Customer satisfaction is predictive, which means that Netflix’s financial woes may be just beginning. Meanwhile, Amazon may have started as an online bookstore, but it now competes in almost every significant retail category and it is setting the bar very high for any company selling online. E-retailers have consistently upped their game since we first started measuring holiday satisfaction in 2005, but Amazon is still the 800-pound gorilla of retail, and it just keeps getting better. It’s tough for a smaller retailer to compete with this level of dedication to providing an excellent customer experience.”

Since 2005, the average customer satisfaction score for the Index has increased from 74 to 79. A score of 80 has always been the standard for excellence; given the causal relationship between satisfaction and financial success, it is not surprising that most of the sites receiving the top 40 largest revenues according to Internet Retailer also have very high satisfaction scores. Any retailer scoring below average risks eroding loyalty, recommendations, sales, and market share to competitors who score higher, so even the Top 40 need to improve stay at the top of the heap. If satisfaction drops significantly, a revenue drop is likely to follow.

The report includes individual satisfaction scores for the 40 top e-retailers for the past seven years, allowing for comparisons over time and between companies:

* Next to Netflix, both Gap.com (down 6 percent to 73) and Overstock.com (down 5 percent to 72) have the largest declines in satisfaction, leaving them with scores at the bottom of the Index.
* On the other end of the spectrum, the largest gains in satisfaction go to TigerDirect.com (up 8 percent to 79) and JC Penney (up 6 percent to 83), which named Ron Johnson, former head of Apple’s retail operations, as CEO this year.
* Price matters less: American consumers were less price sensitive during the 2011 holiday shopping season than they were last year

Nearly 20 years of research coming from both academia and the private sector indicates that increasing customer satisfaction is one of the most powerful things a retailer can do in any channel to increase sales, loyalty, and positive word-of-mouth recommendations. The report quantifies the impact of satisfaction on these desirable customer behaviors.

“Customer satisfaction is a leading indicator of consumer spending, and the bump in the Index is good news for online retailers,” said Freed. “Unemployment is down, consumer confidence is up, and holiday retail sales are up from last year. Improved customer satisfaction suggests the good news may continue into the new year.”

The seventh annual holiday online satisfaction report is based more than 8,500 responses from visitors to the top 40 e-retail websites according to sales revenue as reported by Internet Retailer’s Top 500 Guide. Survey responses were collected via FGI Research’s Smart Panel. ForeSee Results used the methodology of the American Customer Satisfaction Index to calculate the scores. The ACSI is the national standard for customer satisfaction, and this measure has been shown to have a direct link with stock prices and other measures of financial performance.

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