Costco tops Amazon as the new king of internet retail

Amazon’s reign is officially over – for at least one year, anyway.

After leading customer satisfaction in the e-commerce space since 2010, Amazon dropped 4 percent to an ACSI score of 82 (out of 100), according to our latest Retail and Consumer Shipping Report. The new leader? Costco.

In its first year in the internet retail category, Costco posted an ACSI score of 83, matching its in-store mark for both the department/discount and supermarket categories.

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Costco wasn’t the only newcomer to score high in its first year in the internet retail category. Among the 21 new companies, Etsy, Kohl’s, Nike, and Nordstrom each debuted with an ACSI score of 81. Apple, HP Store, Macy’s, Target, and Wayfair also made strong impressions, scoring 80 a piece.

The expansion of this category makes Costco’s top-ranking performance all the more impressive. Costco has historically succeeded in categories linked to the in-store experience – especially when you consider the popularity of its pizza – so when you factor in the e-commerce experience, the results seem almost inevitable.

Costco’s recipe for success

Membership-based warehouse stores were the real winners in the retail trade sector in 2018, and none shined quite like Costco. According to CNN Business, Costco’s strategy to accomplish this was to “perfect what’s been working for four decades.”

Brick-and-mortar stores are the company’s bread and butter; that’s unlikely to change. Customers enjoy the experience of shopping at Costco, they remain unwaveringly loyal – 90 percent of Costco members renew their subscriptions – and perhaps most importantly, they appreciate the value they receive.

Costco offers cheaper products without sacrificing the quality. Look no further than its signature Kirkland brand, which offers less expensive alternatives and is considered by analysts to be “one of the most popular white labels across retail.”

How does all of this tie into Costco’s success in online retail? Perhaps it’s best to look at why Costco decided to go online in the first place.

What’s driving Costco online?

Costco had been reluctant to venture into online retail for two reasons. First, its winning formula has always been based around giving customers a great in-person experience, and second, it’s pricey to ship bulk items.

Costco may have been dubbed “Amazon-proof,” but there’s no guarantee the label lasts forever. One way Costco has staved off the competition is by cornering the food market. Per CNN, 93 percent of Costco members turn to the warehouse store for their groceries. But for how long?

Costco can’t afford to get complacent when other online retailers want a piece of the pie. The only way to defend itself against would-be assailants is to embrace internet retail.

And it has. Costco now offers same-day fresh delivery through Instacart and also launched CostcoGrocery.

With CostcoGrocery, members receive two-day delivery when they order “shelf-stable” products on the website. They also get free shipping if the purchase exceeds $75, according to The Wall Street Journal.

How Costco is reshaping the e-commerce and retail landscape

Costco’s biggest selling point is its in-store experience. It’s made a killing in that respect. But it also recognizes the importance of creating a presence in the e-commerce space.

Costco offers 10,000 products on its website and app. It lets you buy expensive items online, including furniture not previously sold in stores, and gives you the option to pick up your online purchases in the store. The result of Costco’s expanded online offerings has been a 21 percent increase in online sales since July 2018.

In a world where most customers are choosing to shop online, Costco has managed to keep its customers coming back to the warehouse. And yet, that hasn’t prevented it from dabbling in the e-commerce space. From the looks of it, Costco is clearly succeeding there as well.

Even if the Oscar Doesn’t Go to ‘Roma,’ Netflix Has Already Won

If you’re a film buff, a fan of A-list celebrities, or simply can’t turn down a full-fledged red carpet extravaganza, odds are you’ll be glued to your television on Sunday for the 91st Academy Awards.

While we can’t guarantee this year’s event will be any more (or less) exciting than years past, we already know it will feature something that’s never been seen before: a Netflix film nominated for Best Picture.

Sure, Netflix has earned a few Oscar nods over the past few years. But it’s never been up for Best Picture. With Alfonso Cuarón’s “Roma” – nominated for 10 awards – the streaming behemoth has a legitimate shot to take home the year’s most prestigious gold statue.

Winning the Academy Award for Best Picture would be big for Netflix – and for streaming services in general. It would represent proof that the “Davids” of the small screen can take down the “Goliaths” of the silver screen.

And yet, as much as coming away victorious in the Best Picture category might help Netflix’s credibility among the Hollywood elite who believe that awards season is all that matters, the truth is, Netflix has already won – and has been doing so for quite some time.

It’s Netflix’s world, and we’re all living in it

On the most recent episode of Recode Decode, IAC and Expedia Group chairman Barry Diller said, “Hollywood is now irrelevant.” While that’s a bold statement, there’s plenty of evidence consumers are flocking to streaming services for their original content. And in terms of customer satisfaction for that content, Netflix rules the roost.

According to our most recent data, as of February 7, 2019, Netflix boasts an ACSI score of 81 (out of 100) specifically for its original content. That’s a 2.5 percent bump in customer satisfaction since the May 2018 telecommunications report. The streaming giant has a two-point advantage on its closest competition, HBO Now, which rose 2.6 percent during that same time to 79, and has no intention of slowing down.

Netflix is reaping the rewards of its heavy investment in original content, according to The Motley Fool, and plans to continue with that strategy, with 85 percent of its new spending going toward original productions, per chief content officer Ted Sarandos.

“Netflix has won this game,” said Diller later in the podcast. “I mean, short of some existential event, it is Netflix’s. No one can get it, I believe, to their level of subscribers, which gives them real dominance.” With 245 original shows on its service and another 257 originals in the pipeline, it’s hard to argue with him.

Amazon and Hulu on the rise as well

Although Diller claimed, “those who chase Netflix are fools,” it’s not as if Netflix is the only streaming service seeing success.

Amazon Prime Video’s customer satisfaction with original content is up over 4 percent since May to an ACSI score of 76. The studio has a strategy for taking on Netflix, which includes putting out 30 movies a year, per Amazon Studios chief Jennifer Salke. Amazon also isn’t afraid to drop big money on the festival circuit, spending $47 million at Sundance this year – more than anyone else.

For its part, Hulu increases its original content satisfaction as well, jumping 1.3 percent to 75. The company has 34 original shows available for streaming and another 53 in the queue. Hulu’s main focus is on the comedy genre — 36 percent of its upcoming shows fall under that category.

Win or lose…

Amazon had a Best Picture nominee back in 2017 with “Manchester by the Sea,” but ultimately lost out to “Moonlight.” Now, we’ll wait to see if Netflix can do what Amazon could not.

You’ll have to tune in on Sunday to see it all happen live. Of course, even if “Roma” can’t beat out the competition, it’s clear Netflix is already a winner. Don’t expect that to change anytime soon.

Online vs brick-and-mortar: How purchase-channel differences impact customer loyalty

Experts predicted high holiday sales — the best in years — and big-box retailers … missed the mark. This happened despite more retailers than ever concentrating on e-commerce to capitalize on predictions that consumers would spend more than ever online.

So, what happened? Part of the problem could be that retailers invested in the wrong aspects of their customers’ online and brick-and-mortar shopping experiences, unintentionally hurting customer satisfaction and the likelihood a customer will repurchase.

Specific aspects of customer satisfaction matter more or less depending on where customers shop, and because better customer satisfaction leads to increased customer loyalty, retail executives who don’t understand these differences can miss opportunities to maximize their sales. Knowing how best to cultivate customer satisfaction in a multichannel marketplace is an important competitive advantage, especially for executives planning new campaigns that span online and offline channels. Strengthening customer loyalty can help companies expand their market share.

Previously, there had been little research verifying these differences, but we recently dove into our data and uncovered a few key differences in how customer satisfaction is generated in online and offline purchase channels.

One chance to get it right with online shoppers

To start, we found that customers are more sensitive to their satisfaction when shopping online. What do we mean by that? The likelihood a customer will never purchase a product again or will switch retailers following a single unsatisfactory brand experience is much higher online than offline.

This comes down to convenience. With virtually unlimited retailers at an online shopper’s fingertips, it doesn’t cost them much to switch to a competing brand. But the same customer might need to drive 15 minutes out of their way to find a brick-and-mortar substitute — something they might not be willing or able to do.

Moreover, while customer satisfaction can drop for any number of reasons, our research found that perceived value (a measure of quality relative to price paid) drives customer satisfaction more online than in person. This too is unsurprising, given that e-commerce has played a large role in driving down prices across the retail world.

Perceived value is impacted not only by the product’s quality, but also by any extra costs associated with the purchase, if a promotion is running on the product, if it was easy to find and purchase the product, how quickly the product will be delivered (if shopping online), and more. Because it’s easier for customers to conduct price and quality comparisons online than offline, customers hone in on and develop perceived value more so online than they do in stores.

To build customer satisfaction through perceived value, online retailers should have more efficient websites than their competitors, offer easier access to purchase and search history, and provide more product details, photos, and videos.

Online retailers can’t ignore other factors influencing customer satisfaction either, such as overall quality and expectations. By improving each part of the customer’s experience, online retailers can combat the hair-trigger tendencies e-commerce customers have to switch retailers.

Overall quality and customer expectations key for brick-and-mortar stores

Meanwhile, our data show that the customer satisfaction of offline customers is driven more strongly driven by overall quality and expectations. In brick-and-mortar stores, quality products and customer expectations are key to customer satisfaction. The advantage traditional retailers have is two-fold: face-to-face human interaction and a perceived reduction in shopping risk.

When interacting with an in-store sales representative, customers can ask every question they have and receive trustworthy answers in response. Customers can also handle the product they intend to purchase, receiving tactile feedback about its quality.

This finding validates current recommended practices to enhance customer experiences: Create a pressure-free environment to interact with high-quality products, and ensure knowledgeable staff is on hand. Additionally, offline retailers need to focus on sharing reliable product information and maintaining a trustworthy image.

However, brick-and-mortar retailers won’t be able to attract digital shoppers and compete with their online competitors just by focusing on these areas. Keeping in mind online shoppers’ emphasis on perceived value, brick-and-mortar stores must devise a way to one-up online competitors in this regard. That could start with more competitive pricing, though executives should be wary not to fall into the trap of price cutting.

Overall, retailers can develop better customer experiences and drive more purchasing by customizing their approaches to online and offline purchase channels. Even though retail executives face mounting pressure to consolidate channels and adopt omnichannel strategies, they can’t lose sight of the differences as they head into 2019. If they do, online and offline executives alike risk hurting customer satisfaction and losing out on market share because of decreased customer loyalty and repurchase intent.

The above findings generally persist across customer demographics and retail categories. For exceptions, details on methodology, and more results from the research, read the full paper in the Journal of Retailing.