In today’s ultra-competitive environment, innovative and strategic marketing programs have become an important part of every e-tailer’s marketing mix. Web retailers are facing the reality that customers can go to a competitor with one click and can browse from e-store to e-store in minutes to compare prices and services.
Increasingly, that consumer will go to one of the many shop bots and have the shopping service do the comparison work. This ease of shopping has eliminated many of the economic and psychological switching costs for a customer. As a result, marketing promotions have become a necessary tool that e-tailers increasingly use to drive traffic and revenue to their Web sites.
In an informal study of more than 100 top e-tailers, we found that 100 percent of them were running some sort of Web-based marketing program, ranging from straight discounts to more creative charity donation programs. Product discounts still appear to be the most widely used promotion, but other marketing programs are gaining acceptance, including gifts with purchase (25 percent), sweepstakes (24 percent), shipping (22 percent), free gifts without a purchase (10 percent), refer-a-friend programs (7 percent) and charity programs (2 percent).
Given the importance of promotional marketing programs today, companies need to develop strategies that will support their long-term marketing and business needs. Developing a promotional marketing strategy is complicated because of the variety of available promotions, the high associated costs and the variability of the results.
Not surprisingly, many people think that creating devices to attract and retain new customers is more of an art than a science. However, though there is a need for creativity when it comes to anticipating what will spur action in consumers, there is also room for science.
E-tailers should consider two general rules when developing a promotional marketing strategy and implementing individual promotional tactics. First, ensure that all programs complement the product and reinforce the brand. Second, play to the strengths of the company to ensure that these programs are sustainable under the business model. These rules apply to the offline retailing space, but they are especially evident in the competitive world of online retailing.
E-tailers need to put special thought into fitting the marketing program to the product. Understand how customers view the product, and make sure the promotion builds the brand image of the company. This is how you drive substantial traffic to the Web site.
While the pressures of meeting revenue expectations have forced some companies to run promotions that do not build the brand image, those companies are learning that they should avoid this temptation, as it often has long-term, negative effects for the business.
For example, a beauty site can drive short-term traffic by offering discounts, but that would ignore consumers’ personal connection to their cosmetics. As a result, cosmetic sites have overwhelmingly opted for free-gift promotions instead of product discounts. Six of seven of the top beauty sites offer gifts with purchase to promote their products. The free gift amounts to a product discount, but it avoids the negative ramifications of a pure financial discount.
Another example lies in general-merchandise companies, where the marketing effort needs to encompass an extensive product list. Developing a single promotion that will cover the diverse consumers who purchase their products is a daunting task. These companies have turned to sweepstakes to drive traffic to the site because a sweepstakes program is applicable to a majority of the companies’ customers.
Six of seven of the top e-tailers in the general-merchandise space use sweepstakes. The sweepstakes vehicle is an excellent way to gather information on users and to attract people interested in a range of the company’s products. Companies that consider the long-term brand effects and broad applicability of their marketing programs are seeing stable revenue and sustainable profits.
Marketing programs also need to play on a company’s strengths to have the best long-term effect. Key to long-term success is the ability to attract the “right” type of customer who fits within the cost structure of the company’s business model.
It has been difficult for companies to focus on the right customers because e-tailers have needed unnaturally high growth rates due to investor pressures. With the need for extremely high growth, e-tailers have focused on price-sensitive customers who purchase only on discounts because they represent the bulk of the Internet-buying population.
Jupiter Communications reported that 74 percent of Internet purchasers choose to buy online because of lower prices. Hence, product discounting has become the strategy of choice for many companies. However, only the company with the lowest cost structure wins in this scenario. For every other company, it becomes critical to focus on individual strengths and target the customers who value those strengths.
Companies that focus on the mass market vs. their target customers will achieve lower quality growth and will acquire customers with lower lifetime values. For example, aiming to create a sustainable business through a marketing program such as free shipping will result only in new customers who are likely to go to another e-tailer when the promotion is over. None of the top six home furnishings providers offers free shipping because the cost of shipping is a large portion of the overall cost structure.
Programs such as free shipping become a viable alternative only for companies that have the necessary infrastructure and profit margins to provide such an offer. As one would expect, this is playing out in the real world. All four of the top online grocery companies and all four of the top office-supplies companies offer free shipping. The grocery and office supplies companies have invested in the infrastructure to offer this type of promotion on a long-term basis. Consumers interested in free shipping are the exact type of customer they seek.
E-tailers need to go back to the basics. Search out customers who value the services provided by the company and ignore customers who do not. The company will profit in the long run from a satisfied customer base that is loyal.
Companies should not underestimate the time and resources involved in evaluating, developing and executing marketing programs. The necessary investment in strategic development, targeting, designing, engineering, testing and customer service is substantial and is only justified when substantial results can also be expected.
Crucial for success is ensuring that the results from a marketing promotion cover the direct costs of the promotion plus the indirect administration. To see the long-term benefits outweigh the implementation costs, companies need to fit the promotions into their brand and business strategies.
While developing successful Web promotions can be difficult because of competitive pressures, the results can be spectacular given the viral nature of the Internet. Companies that focus on attracting a large number of the “right” customers with sustainable promotions will win in the long run. Those companies will be able to provide lasting satisfaction to their customers, and the customers will be more likely to clone themselves through referrals. A company with satisfied customers who refer their friends and families will be well on its way to profitability. With today’s financial and strategic pressures, the companies that have the necessary discipline to target quality growth will be the big winners.
• Drew Thelen is chief operating officer and Matt Schmidt is associate account manager at takira.com Inc., San Francisco. Reach Thelen at [email protected].
