Survey: Online Retailers Improve Marketing Efficiency, Profitability

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Findings from an Internet survey revealed last week by and The Boston Consulting Group show online retailers significantly improved their marketing efficiency by taking concrete steps to improve profitability in the second quarter.

Results from the survey of 66 online retailers showed customer acquisition costs fell while order conversion rates rose between April 1 and June 30, said James Vogtle, director of research (e-commerce), The Boston Consulting Group, Toronto.

Vogtle and Kate Delhagen, chair, Committee on Internet Shopping Research,, Silver Spring, MD, attributed this drop to marketing research and discipline.

The average customer acquisition cost among participating retailers fell $5 from $45 in Q1 to $40 in Q2, which is significantly less than the 52-week high of $71 recorded in the fourth quarter of 1999.

Delhagen projected customer acquisition costs will fall to $35 in Q3 before topping off at $55 or $60 in Q4 when retailers pursue holiday shoppers.

Reduced acquisition spending was due in part to a shift away from offline marketing and high-priced television ads that offer no measurable return on investment. This led online retailers to spend more of their marketing dollars on measurable e-mail and direct marketing efforts, Delhagen said.

"Discipline is the right word to use." Retailers are looking to reduce acquisition costs and drive conversions at the same time, which results in them taking more pains to track the ROI for their campaigns, Delhagen said.

Retailers' efforts to target the right audience have paid off in an increased conversion rate.

Conversion rates of participating retailers increased .4 percent to 1.9 percent in the second quarter. "This may seem small, but it has a dramatic impact for online retailers," Vogtle said.

Vogtle attributed the rise to retailers' improved targeted marketing and efforts to integrate interactive features into product and service offers.

According to Delhagen, efforts to drive repeat customer sales have driven conversion rates. Loyalty rates were up, as 45 percent of online retail revenue came from repeat buyers. Retailers dedicated more spending towards customer retention. Retailers are experimenting more with E-mail offers and gaining a better understanding of what will and will not work.

Increased conversion rates would suggest a reduction in the distressing 65 percent shopping cart abandonment rate of 1999, but the survey did not address this issue.

These positive trends are setting a precedent. Some of the surveyed retailers are breaking even and actually turning profits on first time purchasers.

Computer hardware and software retailers set the pace for turning profits on new customers.
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