Smart online retailers are learning from the last holiday season in their approach to promotions this holiday season, according to a Q3 update to Shop.Org/Boston Consulting Group’s ongoing “State of Online Retailing” survey. They’re giving shoppers incentive while conserving resources by finding the minimal level of discount that will move the needle on sales, and swapping out last year’s blanket promotions for those targeting key customer groups.
“Retailers who deliver merchandising and promotions through online and offline channels targeted at the biggest spenders in any given category will emerge as the winners this holiday season,” says Peter Stinger, vice president at BCG who analyzes b2c e-commerce. “An undifferentiated, heavily discounted offering will lead to low margins and losses.”
This year, merchants are balancing the need to promote with the need for profits by choosing online tactics that drive sale without giving away the store, the survey found. For instance, 45% of the 63 retailers surveyed planned to offer free shipping this season, an increase of 17 points from last year. Retailers have found free shipping to be one of the most effective ways to drive incremental sales, with customers preferring it to even more deeply discounted “percent off” promotions. But this year the retailers are more likely to attach conditions such as minimum order size to the offer.
The Q3 update also found that online retailers are continuing to rein in costs, with customer acquisition costs in the third quarter 40% lower than in the third quarter of last year, falling to an average $14 from $20. The average per-customer retention cost, meanwhile, dropped by almost 50% to $5 from $9 in the first quarter of 2001. The use of online media, viewed as the most cost-effective way to reach online consumers, was at an all- time high among retailers, accounting for 78% of overall marketing spending. In fact, catalogs were the only significant offline medium sued to promote online offerings.
With the multi-channel shopper now clearly recognized as the most valuable customer, retailers are tightening integration among channels to increase their share of wallet, the survey found. Examples include the use of the “catalog quick order” feature employed by 51% of the retailers surveyed, and in-store kiosks for placing orders on out-of-stock items, used by 29% of the retailers surveyed. In addition, many retailers are increasing their use of in-store and catalog promotions for their online initiatives, while using their web sites to promote stores and offer catalogs.