NEW YORK — That costly online customer just got cheaper.
Internet retailers have slashed in half their customer acquisition costs — from an average $40 per customer during the second quarter of this year to $20 per customer in the third quarter.
Those findings are among the highlights of a Boston Consulting Group survey of online merchants, who also reported that they expanded their overall customer bases more rapidly in the third quarter, compared to the previous quarter. In its quarterly review of online retailer performance, The Boston Consulting Group polled 94 Internet merchants, half pure-plays and half multi-channel retailers.
“There’s been a dramatic decline — from $40 to $20 per customer — in customer acquisition costs and the main driver is the acquisition spending is smarter, more targeted,” said James Vogtle, director of e-commerce research, Boston Consulting Group. He discussed the results of the report here last month, along with Elaine Rubin, chairman of Shop.org, a Silver Spring, Md., trade association of online retailers.
Additionally, Vogtle said respondents indicated that the number of customers acquired during the third quarter increased 28 percent on average over the second quarter of this year. “So they are having much lower acquisition costs and at the same time increasing their customer acquisitions.”
Something’s working, he said, and it appears to be a shift of marketing dollars away from the mass media frenzy seen last fall toward a more channeled approach. During the first quarter of this year, merchants divided their marketing dollars nearly equally between online and off-line media spending. During the third quarter, however, the shift toward online marketing was evident with 64 percent of advertising dollars going toward online media and only 36 percent to traditional off-line media.
“Online marketing is by far the preferred medium,” he said, citing the proven effectiveness of personalization in e-mail campaigns as well as more focused promotions on Web sites.
“You will not see the same rash of television advertising you saw last season. You will see more focused promotions, a much better experience” for the consumer, Vogtle said.
Added Shop.org’s Rubin: “I believe online retailers are more prepared than they’ve ever been” for holiday selling.
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Among the key findings of the online retailer performance report are:
Customer acquisition costs have ridden a roller coaster over the course of one year. While the current $20 per customer acquisition cost cited by survey respondents represents a dramatic drop from the previous quarter’s $40 cost, it’s even more impressive when compared to late last year. In the fourth quarter of 1999, online retailers reported spending $71 on average to acquire one new customer.
The online browser-to-buyer conversion rate appears to be holding steady at 1.8 percent during the third quarter of this year. That’s on par with the average conversion rate for all of last year, according to the survey.
Online merchandise returns represented 5.4 percent of total revenue during the third quarter, according to respondents.
Revenue generated from repeat customers appears to be slowly but steadily increasing. During the third quarter, respondents attributed 48 percent of their sales to repeat customers; that’s up from the second quarter’s 45 percent and up from the first quarter’s 41 percent.
Approximately 12 percent of respondents indicated they would offer free shipping services with no strings attached this holiday season, while 28 percent reported they would offer free shipping with some conditions.