At Bluefly, Lowering Acquisition Costs Is a Company-Wide Concern

Not every dot-com story reads like a comedy of direct marketing errors, at least not anymore.

Bluefly Inc., an online discount apparel merchant that reported spending $239.46 to acquire each new customer in the second quarter of 1999, now reports that new customers cost the company $9.40 each.

As reported at the time in DM News, Bluefly began focusing on slashing acquisition costs in 2000. By the second quarter of that year, it had driven such costs down to $73.21 each, a huge improvement, but still a jaw dropper by traditional direct marketing standards.

Just as there is no typical response rate to a direct marketing campaign, there is no typical customer acquisition cost. It depends on how much customers order, how often and for how long. But just as direct marketers often cite 1 percent as a typical response rate, direct-to-consumer catalogers often cite $15 as an acceptable customer acquisition cost.

“We began testing in the early days to see what worked, and when you run tests, your customer acquisition costs spike,” Bluefly CEO Ken Seiff said. “That [$239.46 figure] was only for one quarter and began to fall precipitously as we began to take the testing data and invest in what was working and cancel what wasn't.”

For example, Bluefly has cut lifestyle-type brand advertising to less than 10 percent of its budget, Seiff said.

Bluefly's success at lowering acquisition costs results partly from some fairly typical direct marketing testing, generally 10 to 20 offers at a time through various media, but also from some not-so-conventional tactics.

For example, the backs of Bluefly employees' business cards have stickers with discounted prospecting offers.

“We have 80 employees here who give out hundreds of business cards per year, sometimes thousands,” Seiff said. “So we put stickers on the back, and that's generated a healthy chunk of new customers.”

The company puts source codes on the stickers, but Seiff said he could not say how much revenue they generate. “I just don't have those numbers handy,” he said.

Seiff claims that the entire company is responsible for slashing acquisition costs.

“This effort was initially undertaken by the marketing department, but then was taken up by the customer service teams, the merchant [merchandising] teams and the technology teams,” he said. “The most efficient customer acquisition depends on all departments aligning around that goal.”

The technology department, for example, focused on making the Web site faster.

“I can't tell you how much the increase in speed contributed to reducing acquisition costs because there's no way of knowing, but we undertook activities all over the company,” Seiff said.

Bluefly, New York, also gave customer service reps more flexibility when dealing with prospects.

“We didn't put a metric on them and say 'you've got to answer this many calls an hour,'” he said. “We said 'if you've got a customer, help them until you finish helping them.'”

Bluefly has determined another way to gauge customer service reps' effectiveness with new customers, according to Seiff, though he would not elaborate.

What's more, he said, rather than becoming territorial, “the marketing department has been the creator of this initiative to make sure that everyone understands that they have a hand in the customer acquisition costs.”

Bluefly is projecting profitability for the first time in the fourth quarter of this year.

Launched in September 1998, Bluefly's average order size is $161.76. New customers spend an average of $144.73. Repeat customers spend an average of $171.53. After accounting for returns, credit card chargebacks and uncollected sales taxes, the company reported $7.7 million in sales for the first quarter of 2002, the most recently reported quarter.

Meanwhile, Bluefly's postal list went on the market last week for the first time. ALC of New York manages the file, which includes 284,000 designer fashion and home decor buyers. Selects include demographics, recency, buyers of women's apparel, men's apparel and home products, and dollar amounts.

Bluefly's demographics are 73 percent female, with average ages of 25 to 35, and an average household income of $100,000.

Bluefly's customers' e-mail addresses are unavailable.

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