Online Retailers Try New Approaches

Study Shows Increasing Acceptance of Social Nets and Video

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NEW YORK (AdAge.com) -- For online retailers, search and e-mail marketing continue to be the most popular tactics, though they are becoming increasingly interested in social networks and video, a new study indicates. That shift in tactics could be a risky endeavor, however, caution executives involved with the study.

According to a Shop.org survey of 125 online retailers conducted by Forrester Research, 90% of them participate in paid search and 92% rely on e-mail marketing. By comparison, just 26% use social networks or micro-sites, while only 21% employ online videos. The coming year could see a shift to new advertising tactics.

Too big to ignore
Some 65% of retailers said that social-network ads will be an increasing priority in 2008. But Scott Silverman, executive director of Shop.org, a division of the National Retail Federation, cautions that there is no proof that social-network ads can deliver new customers or sales. Online retailers that have tried social-network ads report that their average cost per order is $50, making it comparable to traditional portal deals, according to the study.

"Social-networking sites need a little bit of time to mature as a business," Mr. Silverman said.

Online retailers will also be looking closely at video in the coming year, with 67% of respondents saying it will be an increased priority. Wireless messaging, widgets, instant messaging and RSS web feeds will receive increased priority as well.

"Retailers are quite interested in [new vehicles] as they look to diversify their mix," said Mr. Silverman. "Our recommendation is to be cautious," he said, noting that there are still "question marks" when it comes to ROI of the newer strategies, while tactics such as e-mail, search and free shipping are proven.

Costly concession
Still, many retailers said that in the coming year they hoped to move away from free shipping in favor of loyalty programs. In 2007, 85% of online retailers said they had used some type of promotional shipping, but just 35% said they plan to focus more heavily on those types of promotions in 2008.

"As painful as free shipping is, it works, so don't abandon it," advised Mr. Silverman. "Some retailers are convinced [customers] will buy anyway without the free-shipping offer. However, every time we ask customers, they tell us they love free shipping. ... With the economy the way it is, it just may not make sense [to move away from it] at this time."

Overall, online retailers continue to remain focused on new-customer acquisition. In 2007, 53% of overall marketing budgets were spent on customer acquisition, while 21% was spent on customer retention. Pushing sales in non-online channels accounted for 15% of the budget, and 11% of the budget was spent on promoting brand awareness.

Keeping customers happy
But as the channel matures, Mr. Silverman says, retailers will need to begin focusing on retention. Online sales grew 17% to $175 billion in 2007, accounting for 6% of retail sales. But, in the coming years, growth is projected to gradually slow, so that by 2011, online sales will grow at a rate of 11%.

"We know that the number of new customers coming online is slowing down," he said. "As [retailers'] customer bases get bigger and bigger, they can move the needle more by getting existing customers to buy more and come back."
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