Operating on a hunch that the online advertising market was about to become easier for buyers, the founders of Shoebuy.com launched their site three years ago determined to pay only for advertising that resulted in a sale. After sticking to their guns in early advertising contract negotiations, their strategy has resulted in low customer acquisition costs, surging sales and consistent quarterly profits, the company says. "That was one of the best decisions we've made," co-founder and CEO Scott Savitz tells Internet Retailer.
Savitz, a former banker, says the privately held Shoebuy operates with an average customer acquisition cost of about $7, which along with direct network connections to shoe manufacturers' fulfillment systems helps the company maintain 40% gross profit margins.
Getting to those numbers wasn't easy. But Savitz and co-founder Craig Starble, who each left positions as investment managers at BankBoston (now Fleet Boston Financial Corp.) to launch Shoebuy in January 2000, were determined from the start to avoid the approach taken by other dot-com startups in spending heavily on advertising before securing sales. "We were scratching our heads about customer acquisition costs," Savitz recalls.
The two figured that the advertising market was about to shift, resulting in terms more favorable to buyers. So they set out to sign advertising contracts only if the terms let them pay for advertising that resulted in a sale.
When Savitz and Starble entered their first contract negotiations for pay-for-performance online advertising, most sellers balked at what was then a new concept, Savitz says. "We had many people walk away from doing the deal," he says. And most of those stepping away from the table offered the venues Savitz and Starble wanted the most, such as major shopping portals.
Now Shoebuy, which advertises on web sites such as AltaVista.com, Yahoo.com and AskJeeves.com with links to Shoebuy.com, can use the early stages of its advertising campaigns to find out what works without spending a fortune. "We could have 20 million impressions, but we only pay if we get a sale," Savitz says.
Shoebuy supplements its online advertising with e-mail marketing to a list of about 400,000 customers who have registered their e-mail addresses. "We find the most effective part of our e-mail campaigns is letting our members know when we area launching new styles of a brand they like to buy," Savitz says. He adds that e-mail is an essential tool for retaining customers. "It proves to be a huge complement to our other online advertising," he adds.
The e-retailer lures customers to give their e-mail address by granting 10% discounts on purchases when they register on Shoebuy.com. The registration is followed by e-mail updates on product offers.
Shoebuy's marketing strategy has coincided with a sharp rate of growth. With 1.5 million monthly visitors, including 1 million unique visitors, it's on course to hit $16 million in sales this year, up from $10 million last year and $3.5 million in 2001. The e-retailer says it has been profitable for the past five quarters.
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