Allison Sewell

August 28, 2000

Building a New Customer Stickiness

While most of Paul Ormerod’s Butterfly Economics focuses on the impact of human behavior on a macroeconomic level, the book raises interesting issues for individual businesses in the Internet era. In particular, Ormerod addresses the impact of a customer’s ability and propensity to change his mind – to choose another vendor, another brand, another product altogether. As it becomes easier for a customer to change his mind, and therefore his selections, the ability of one company to maintain market dominance begins to erode. Only in instances where a purchase is extremely expensive can a company achieve "permanent market control".

For the most part, the flourishing of the Internet and E-commerce sites has made it easier than ever for customers to switch from on particular product or brand or vendor to another. With widespread product information available online a customer relies less on friends’ suggestions and more on actual product data when selecting a product. Hotbots and search engines allow a customer to identify the site where the product is available at the best price, so customer loyalty to a particular site is rapidly diminished.

So why then have we experienced a simultaneous dramatic rise in advertising for E-commerce sites? Companies like Amazon and Outpost pour staggering amounts of money into advertising campaigns claiming that they are working to build a customer base and market dominance in their respective markets. But if customer loyalty has been so diminished, why then should these E-commerce companies waste their advertising money on one-time customers?

The answer lies in customer stickiness. E-commerce sites have realized that customer stickiness is the key to their company’s sustainability. These companies are using customer accounts that recall billing information, email reminders, sales and discounts targeted at frequent users, and a variety of other tools to retain a customer’s business. These efforts should pay off and will differentiate the companies that will succeed over time from those that will not. The short-term perspective of obtaining customers will not build a strong, enduring company in this Internet age. Instead, companies must maintain a long-term view that emphasizes the importance of building a new customer loyalty to succeed in this new business environment.