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Merchants cut market costs
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November 28, 2000: 2:59 p.m. ET
Customer acquisition expense by Net retailers falls by half in 3Q, survey finds
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NEW YORK (CNNfn) - Online retailers cut their customer acquisition costs in half during the third quarter as they struggled toward profitability, a trade group reported Tuesday.
Internet merchants spent $20 in marketing and promotional outlays for each client who actually purchased something from their Web sites, according to the study by Shop.org and the Boston Consulting Group. By contrast, those were expenses were $40 per customer in the second quarter.
Much of the cost drop came as online retailers focused on targeted marketing rather than more expensive mass-market advertising campaigns, according to survey results from 94 Web merchants.
It remains to be seen, however, whether e-mail and banner ads can substitute for offline marketing programs. James Vogtle, director of e-commerce research at Boston Consulting Group, said conventional catalog merchants spend $38 to win a customer.
"We'll see if online retailers are able to maintain that," Vogtle said in a conference call with reporters.
E-commerce companies have been pummeled in the marketplace as stock prices plunged for publicly traded e-tailers and venture funding dried up for their privately held counterparts.
Less spending on TV ads
The more frugal marketing approach appears likely to persist during this holiday shopping season. Only 4 percent of respondents plan to increase their TV spending, the survey found, while 62 percent will boost their online marketing efforts, such as e-mail advertising.
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 HOW MERCHANTS ARE MARKETING
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Web retailers are putting their promotional efforts into e-mail marketing, according to the survey by shop.org and the Boston Consulting Group. Here are the top five marketing activities:
Increased direct (online) marketing spending - 62 pct.
Gift certificates (regular or electronic) - 54 pct.
New/revised portal deals - 39 pct.
New partnership deals with content sites - 33 pct.
Increased off-line media spending (excluding TV) - 33 pct.
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The survey did not indicate how the marketing efforts would be split among e-mail marketing, banner ads or other targeted online media. It did find something of a split between "pure-play" Internet-only merchants and multichannel retailers, which may have print catalogs or retail stores in addition to their Web sites.
Among the multichannel operations -- about half the survey sample -- 42 percent planned to increase offline ad spending, which includes direct mail, newspapers and magazines but excluding broadcast ads, while only 26 percent of the Internet pure plays planned such outlays.
But the differences between pure plays and bricks-and-clicks operations seem to be diminishing, researchers found. "The channel differences tend to be subtle ones," Vogtle said. "We seem to be coming to a convergence."
The survey also showed that 70 percent of merchants had redesigned their Web sites, and more than 60 percent had added customer service or order-fulfillment capacity.
"The ongoing dot.com market correction is far from having a negative effect on online retailing as a whole," said Kate Delhagen, chairman of Shop.org's Committee on Internet Shopping Research. "It has actually led online retailers to renew their focus on customer service, cost reduction and profitability."
Overall in 2000, consumer spending online is expected to grow 85 percent to $61 billion, Vogtle said. Recent research by BCG and Harris Interactive also showed that last year's holiday shoppers are planning to increase their online holiday spending to $240 this year from $170 last year. 
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