Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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In addition, the forest fire of the dot-com bust has cleared away a lot of retail competitors, leaving consumers with clearer choices. That, in turn, makes them more confident that they’ve made the right choice in their purchases and thus more willing to buy. “The plethora of offerings led to hesitation by buyers; there was no way to know if you had gotten a good deal,” says Samuel P. Gerace, founder and chief technology officer of Be Free, now owned by marketing company Value Click Inc. He likens buyers’ attitudes about online purchases a year and a half ago to car buyers in a survey who expressed dissatisfaction with their purchases, not because they didn’t like the car but because they feared they hadn’t gotten the best deal possible. “There’s a lot less confusion because comparison shoppers no longer believe they have 20 options for every purchase,” Gerace says.
The retailers who are left have learned more about marketing on the web and thus have become more sophisticated about targeting that marketing. One of the hottest online marketing methods is affiliate marketing, in which a retailer posts a link at a site that the retailer believes will attract the kinds of customers the retailer wants, then pays a commission to the hosting site when a customer clicks through on the ad and buys. From a throw-it-out-there-and-see-what-works approach early on, retailers have moved to evaluating affiliate relationships to make sure they get a return on managing those relationships. As a result, affiliates are driving sales at a number of sites, including Hanover Direct’s, which has as many as 20,000 affiliate relationships. “We’re doubling our affiliate sales over last year,” Kapplow says.
There also are new twists to affiliate marketing that are putting buying opportunities in front of more customers more frequently. For instance, Yes Networks Inc. is linking Amazon.com and CDNow.com to radio station sites. Using technology that identifies music playing at 1,000 radio stations throughout the U.S., Yes Networks can download the information to a station’s web site so listeners can learn what’s playing at the moment, then immediately buy the CD. (See related story, p. 12.)
E-retailers are also developing a deeper understanding of e-mail’s role in marketing. The mantra today is focus. “The blast campaigns are down,” Gerace says. And major catalogers are printing their URLs on every page of their catalogs. For Hanover Direct, that means billions of impressions as consumers browse the 240 million catalogs it mails each year. Clearly, the focus has been not on brand advertising but on marketing that will give an immediate boost to online sales “When we market, we’re looking for the call to action,” Kapplow says.
Retailers have also become smarter about presenting merchandise, so that once their marketing has brought customers to a site, they know better how to convert visitors to buyers. For one thing, consultative selling techniques have increased, driven primarily by computer sellers Dell Computer Co. and Gateway Inc. As a result, consumers are not afraid to buy computers online because sellers have devised ways of letting them know that they’ve bought the right system. “The Internet is learning to assume some of the consultative roles that individuals play in stores,” says Jerry Johnston, CEO of Critical Mass, a division of marketing company The Omnicom Group Inc., which designs web sites for such high profile customers as Mercedes Benz USA, Nike Inc., Dell and automotive parts retailer The Pep Boys, Manny, Moe & Jack. “People want assurance that that they’ve made the right decision. One of the areas we focus on is assuring customers that what they’ve just configured is right for them.”
Web sites also are learning to apply merchandising and cross-sell/up-sell techniques from the store world to the web. For instance, Lands’ End Inc. recently implemented a cross-sell at checkout, offering products that complement what the customer is about to buy. 30% of customers who get the cross-sell pop-up window click through to the suggested merchandise. “Online retailers are getting better at targeting their customers so they’re getting those cross-sells and up-sells,” Okamura says.
And retailers are understanding the importance of communicating that they are a real business that has more than just a nice web site. While that’s easy for chain stores or catalogers to achieve simply by the power of the brand, it’s not so easy for small retailers or pure plays, as many failed dot-coms learned too late. Thus they are tuning in to customers’ concerns about credibility and reliability. “With a new company online, there’s a certain amount of distrust,” says Jackson of FlavorBouquet.com, which records as many as 12,000 visitors and ships up to 500 orders a month, “and that carries over to online shopping.”
All of this better understanding of how to use the web is the result of experienced offline retailers now being able to focus on retailing on the web, rather than on maximizing their web investments, some observers say. “Ultimately the frenzy did sophisticated retailers a disservice because it forced them to pay too much attention to the frenzy and not to what they knew from the offline world-that merchandising is important,” Be Free’s Gerace says.
On top of bringing offline techniques to the web, retailers are leveraging the unique properties of the web, and that, too, is increasing sales. Many retailers have implemented such web practices as search or order by catalog number, account registration and one-step checkout. And many are developing a better understanding of how the web is different from other channels. “As the Internet has matured, we are seeing fewer retailers who throw up their entire catalog and expect consumers to page through 1,500 pages,” Gerace says.
The hottest categories of online sellers continue to be the products that either consumers know well or don’t need to experience before they buy. Thus Be Free says the top sellers are health and beauty, up 53% in the first half, computers and consumer electronics, up 44%, and home and garden, up 38%. ComScore Networks reports that the top sellers are office supplies, up 51% over a year ago, and computer hardware, up 45%. Gifts and flowers continues as a hot category as well, with sales increasing 100% or more during gift-giving periods, such as Valentines Day and Mothers Day.