Customer Service: Achilles’ Heel of Web Businesses

It took only a few minutes to order online, but within a few hours after the sleek, high-powered Dell personal computer arrived at Allen Dorfman’s home, the excitement of his $2,000 purchase was already wearing thin.

The irritation began when he heard a strange rasping from his storage drive. It grew when Dell’s support staff suggested that he take the machine apart himself to diagnose the noise--despite the company’s on-site service warranty.

He started to panic after more than 20 hours of contradictory advice from at least a dozen service reps resulted in the replacement of the defective drive with another defective drive.

“I’ve never run into so much incompetence in a large organization, or such a rigid, unyielding attitude,” said Dorfman, who has compiled 50 pages of e-mails for a possible arbitration proceeding. As a customer-service representative for a Burbank printing company, the experience irked him professionally almost as much as it enraged him as a consumer.

After weeks of frustration, Dorfman gave up and asked for his money back. But the 30-day grace period had elapsed and he’s stuck with an apparently unreliable PC from what is widely regarded as one of the Web’s most consumer-friendly retailers.

Even as online stores expect record sales this holiday season, such experiences are one reason why 79% of online transactions are abandoned midstream--negating more than $6 billion in potential sales last year, according to Datamonitor, a research group.

“The online retailers really blew it,” said Bob Chatham, an analyst with Forrester Research. “They had a clean slate to start from in establishing these kinds of services,” but customer-care stumbles have damaged Web merchants’ credibility.

Service was so bad last holiday season that seven large Web stores, including CDNow, Macys.com and Toysrus.com, agreed to pay $1.5 million in civil penalties for misleading customers about shipping delays.

Experts say that service gradually is improving as chastened online merchants expand their customer-service departments. But they have a long way to go. Among the top 50 consumer electronics e-tailers, for example, none received excellent or good ratings in recent testing by the research firm GartnerGroup.

Many merchants face a make-or-break test this holiday season amid a crisis of confidence for the online retail industry.

Investors have hammered firms whose business plans suggest scant hope for profits in the foreseeable future, forcing scores of sizable “dot-com” stores out of business. Many cash-strapped survivors are cutting corners on costly customer services.

Ironically, the tiniest Web merchants often provide the best service.

TranscendPC in Manhattan, Kan., is one of a handful of e-tailers to receive a perfect 10 rating from Bizrate.com, a service that polls online customers and aggregates their responses. TranscendPC sells only a few dozen PCs a week--often at higher prices than Dell’s--but virtually every customer goes away satisfied.

Nate Meile, a TranscendPC service rep, spends up to four hours on a single call, much of it “talking about something interesting, like football,” he said. “It’s about building that one-to-one relationship with everyone.”

Darren Bonawitz, the firm’s owner, once spent hours helping a customer set up a fully loaded Windows PC; the buyer then wanted to return the perfectly operating unit because it failed to run software designed for the Apple Macintosh. Bonawitz shrugged and took the system back, eating the cost. He figures his reputation was more important.

“My goal is to out-Nordstrom Nordstrom,” said Kim Michaux, owner of One of a Kind Kid.com, a genuine mom-and-pop operation she runs with her husband out of their home in Roanoke, Va. Michaux buys surplus inventory of past-season designer clothes and sells at steep discounts on her site, using her three kids as fashion models.

As the only full-time employee, she can ensure customer-service quality--judged near flawless by Bizrate. She personally responds to toll-free phone support calls, answers e-mails within an hour, and offers live, online text-chat for queries.

“We’re scrambling and staying up until 1 in the morning, but customers don’t see that,” she said.

The larger Web-based businesses often take the opposite approach--discouraging support calls by burying toll-free numbers under layer upon layer of Web pages, pushing customers to electronic support. But responses to online chat queries are often ponderously slow, and e-mail responses can take days.

“There’s this fantasy that technology will replace customer service,” said Jeffrey Tarter, editor of the industry newsletter Soft-Letter. “When you finally get frustrated enough to talk to a real person, you want a real person--not a chat group.”

And when you do get through on the phone, the live person on the other end may be unhelpful or lack essential knowledge, as Dorfman learned.

“Turnover in your average call center is 50% to 200% a year; those places are just mills,” said Forrester’s Chatham. And service contractors, increasingly hired to take over the job, experience the same problems, plus a greater challenge learning the product line.

Great customer support can capture wavering buyers and win loyalty. But funding good service can be almost impossible when profit margins are razor-thin--typical in a market where many firms have slashed prices to lure bargain hunters.

Such conditions have led to rampant shysterism, said Adam Kuszer, operations manager and part owner of Digital Kingdom, a Brooklyn, N.Y.-based online consumer-electronics retailer.

Kuszer’s company has the dubious distinction of recently ranking dead last in customer support among the 1,373 merchants rated by Bizrate.com. He attributes that showing to sales practices--recently abandoned, he said--that could be construed as dishonest or worse.

Until late August, Digital Kingdom advertised a price for a camera or another product at or below cost, Kuszer said. Then, “If the guy calls and doesn’t buy [costly] accessories, then they tell him it’s out of stock,” he said.

A barrage of customer complaints led Kuszer to end the practice, which he describes as typical in the industry.

“It gets really dirty when you play that game down in the ditches,” he said, adding: “We saw the light. We used to do crazy volume, but it meant nothing.”

Companies that have moved online after running traditional bricks-and-mortar or catalog operations must manage another problem: Making sure that operators at established call centers see the status of a Web transaction. “That kind of disconnect has left customers scratching their heads--they don’t see these as separate entities,” said Chatham.

Lands’ End and L.L. Bean, for example, have integrated their online and real-world operations. But operating a large, effective support organization can be a monumental expense. L.L. Bean spent $42 million for a new fulfillment center in 1996 and tens of millions more on support in the last decade. The clothing giant has recouped the investment by earning three times as much on “multichannel” customers--those who shop via the Web and the company’s catalog, rather than using just one method.

Such expenditures may be the simple cost of doing business for large Web merchants, and the top stores say it’s well worth the investment. When service really clicks--well-designed Web pages, clear and simple forms, readily available and knowledgeable help, efficient shipping and personalization--then dot-com shopping can dramatically outshine a trip to the mall staffed by surly teenagers earning minimum wage.

Even after 30 years of loyal patronage, “I’ve never walked into a bookstore in Harvard Square and heard anyone say, ‘Hi Jeff Tarter,’ ” or make thoughtful reading suggestions, as Amazon.com does, says Soft-Letter’s Tarter. And no bricks-and-mortar merchant keeps your credit card and shipping information on file to complete a transaction in seconds.

Most experts believe that, as inept merchants fall away, the survivors will improve. But the process may get worse for a while, as Web enterprises struggle to rebound.

Consider Minneapolis-based Damark International Inc., a 14-year-old company that sells a wide range of consumer goods to members of buying clubs via catalogs and the Web. Damark has lost money of late, and service quality looks to be a major factor. Bizrate shows Damark ranking last in customer support among all similar stores in nine of 11 categories in which it sells, second to last in the other two.

Damark Chief Executive Mark A. Cohn concluded that the company would not ultimately be able to compete in direct sales. Still, the experience of fielding 100 million customer phone calls and shipping 40 million packages over more than a decade must be worth something, he reasoned.

So Damark is refocusing its core business to become a contractor for other Web merchants. The service? You guessed it: customer support.

You Call This Service?

Among e-retailers, electronics and furniture sites are the worst at answering questions about their policies, products and technologies.

(Tabular data not included).