The survey, which examined 63 retailers of various sizes in several categories, found that both multichannel and Web-based retailers have learned from past marketing missteps and many are now taking a much more considered approach to promotions. Instead of offering steep discounts to attract customers, retailers are finding ways to offer the minimum discounts necessary to increase sales volume, and to deliver targeted promotions to the more than 100 million consumers expected to use the Internet over the holiday season.
“The key to retailer success over the holidays is a question of focus. Retailers now know that the most valuable customer is the multichannel customer — the customer who researches and purchases products online and in stores or through catalogs. The online channel is an important avenue to reach these customers and achieve a larger share of their wallets,” said Peter Stanger, a vice president at BCG. “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. On the other hand, an undifferentiated, heavily discounted offering will lead to low margins and losses.”
Even the right discounts will bring a sharp decline in profit margins due to holiday promotions, but more advanced retailers are developing online marketing tactics that drive incremental sales without giving away the store. As an example, the Shop.org/BCG study pointed to “free shipping” offers. Forty-five percent of retailers planned to offer the promotion this holiday season, 17 percentage points more than last year. While at first these promotions may smack of desperation, or seem to be relics of the early days of e-commerce, there is an important twist this year. Retailers have found free shipping to be one of the most effective ways to generate incremental sales volume — provided the offer is combined with conditions such as minimum order sizes. In fact, retailers report that consumers prefer free shipping to “percent off” promotions, even if the total amount saved is less.
|Retail Channel Integration|
|Integration Device||Retailers Offering|
|In-store or in-catalog
marketing of online channel
|Gift certificates purchased online
and redeemable offline
|In-store return of online orders||61%||51%|
|Quick catalog orders on site||51%||32%|
|Online store used to liquidate
online and offline inventory
|Gift certificates purchased offline
and redeemable online
|In-store Internet kiosks||29%||15%|
|Real-time in-store inventory
|In-store pick-up of online orders||17%||15%|
Other findings from the Shop.org/BCG Study include:
- Acquisition costs in the third quarter were 40 percent lower than in the third quarter 2000 — falling to $12 from $20.
- Retention costs declined by almost 50 percent since first quarter 2001 — to $5 from $9.
- The use of online media was at an all-time high — accounting for 78 percent of overall marketing spending — led by email, which is the most cost effective vehicle to reach online consumers.
- Catalogs were the only significant offline medium used to promote online offerings.
- Repeat customers and shopping cart abandonment are virtually unchanged from second quarter. The only exception was order conversion rates, which experienced a modest decline to 2.0 percent from 2.2 percent in the second quarter, but which are still higher the the 1.8 percent in the third quarter of 2000.
“Since the dot-com correction and through the current recession, retailers have learned to be better marketers online, which is helping to put them in stronger financial shape than last holiday season,” said Elaine Rubin, chairman of Shop.org. “As retailing on the Web has matured, the bar measuring online success has also been raised and competition between retailers and across channels has intensified. Perhaps the most notable developments were the steps many retailers took to integrate their sales channels. That’s due to the fact that in this challenging environment, one of the most effective ways for retailers to increase their share of the consumer’s wallet is to focus on cross-channel coordination.”
As retailers focus on deepening their share of wallet of multichannel customers, the Shop.org/BCG study found that every type of effort to enhance the level of coordination between channels in marketing and transactions saw an increase in the number of retailers that intend to employ it.
Two examples are the use of catalog “quick order” features online (51 percent of retailers surveyed) and providing in-store Internet terminals that allow customers or staff to place orders and locate out-of-stock items (29 percent of retailers surveyed). In addition, many retailers are increasing the level of in-store and catalog promotions for their online initiatives, and they increasingly use Web sites to promote stores and offer catalogs. This year also marks a widening effort to collect customer email addresses during in-store and catalog transactions for use in later promotions.
The result has been not only an increase in the number of consumers walking into stores with Web-site printouts of what they intend to buy, but also an increasing willingness among online shoppers to contact customer service when a problem arises, rather than abandon the transaction.
“These are examples of how online shopping is no longer an experiment for consumers,” Stanger said. “The mass market now uses online channels to browse, research and compare. That means the competition for a consumer’s wallet often begins, and sometimes ends, before they enter a store.”
It’s no surprise that multichannel retailers are the retailers who seem to have best survived the online retail shakeout. According to Giga Information Group, U.S. business-to-consumer (B2C) sales over the Internet will grow from an estimated $25 billion in 1999 to $152 billion in 2002 and $233 billion in 2004, and most of this will be to the benefit of multichannel retailers.
As a share of total consumer spending, Giga estimates Internet sales will grow from 0.4 percent in 1999 to 3 percent in 2004. By 2002, multichannel retailers will dominate B2C Internet sales after sharing the growth with dot-com merchants and mail-order converts.
According to Giga’s research, more than half of 1999’s B2C sales were handled by dot-com merchants, but Giga is predicting dot-coms to capture $39 billion in revenues in 2002 and $49 billion in 2004. Multichannel companies will dominate B2C Internet sales by 2002, growing their share of Internet spending to two-thirds of the market by 2002 ($92 billion) compared to one-third in 1999.
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