Online customer acquisition costs are dropping and retention rates are rising, according to the results of a study released yesterday by Shop.org and The Boston Consulting Group.
The study found that customer acquisition costs have declined from a high of $71 during the fourth quarter of 1999, to $45 in the first quarter of 2000, to $40 in the second quarter. The decline is attributed to a shift away from expensive TV advertising to online advertising and marketing.
And while the decline is significant, overall acquisition costs remain higher than the $35 recorded in the third quarter of 1999.
Another finding in the report indicated that online retailers were spending less on brand building and are focusing on customer retention. In fact, almost half of e-retailer’s second quarter revenue came from repeat buyers, up significantly from 1999.
Other findings include:
* Order conversion rates have improved slightly in the second quarter to 1.9% compared to 1.8% the year prior.
* The percent of marketing budgets spent online increased sharply to 59% in the second quarter from 49% during the same quarter in 1999.
* Returns as a percent of revenue dropped to 5.7% in the second quarter, down from 7.6% in the same quarter in 1999.
The report also found that steps have been taken to improve profitability:
* 86% of survey participants have specifically addressed the issue of profitability.
* Although 40% re-negotiated or cancelled their portal deals, online advertising actually increased to 59% of total marketing spending. Retailers likely re-directed their spending towards more targeted approaches.
* 29% indicated that they had deferred site upgrades. The report suggested that while this represents a short-term cost saving tactic retailers could experience longer-term consequences in the form of decreased customer satisfaction.
* In contrast to the recent media emphasis on dot-com layoffs, only 11% of survey participants have exercised this option as a way to improve profitability.
The survey queried 66 North American online retailers.
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