Wednesday, April 9, 2008

Online Sales To Climb Despite Struggling Economy

According to The State of Retailing Online 2008, the 11th annual study conducted by Forrester Research, Inc. of 125 retailers, online retail will continue to be a bright spot in the industry with retail sales* rising 17 percent this year to $204 billion. Apparel ($26.6 billion), computers ($23.9 billion), and autos ($19.3 billion) will be the three largest sales categories.

As the number of people new to the Internet begins to wane, online retailers are constantly struggling between investing in strategies that retain current customers or those that attract new ones. According to the report, online retailers allocate 53 percent of their marketing budgets to online customer acquisition and 21 percent of marketing dollars to online customer retention. However, retailers are finding that traditional acquisition programs such as search engine or affiliate marketing may also serve as retention tools that attract existing customers as well as new shoppers.

According to the survey, retailers report that search engine marketing continues to be the most effective way to reach prospects, citing 35 percent of sales come from that initiative. As a result, nearly all online retailers surveyed (90 percent) use pay-for-performance search placement, and 79 percent said they will make this tactic an even greater priority this year. Companies are also using offline marketing tactics to drive customers to the Web, with catalogs and other direct mail pieces taking priority over methods like television and newspaper advertising.

Though free shipping offers have proven to get some consumers over the obstacle of shopping online in the past, the study revealed that retailers' are less interested in promoting free shipping options this year. While 85 percent of online retailers said they used some shipping with conditions promotions in the past, just 35 percent said that they would focus more on these types of promotions in 2008. Instead, retailers are eager to experiment with Social Computing initiatives to attract customers — 65 percent and 55 percent of retailers respectively said that social network advertisements and widgets would be categories of increased focus this year. However, Social Computing efforts to this point have been considered more effective for brand-building and less proven for driving revenue or sales conversion. Therefore, the report advises retailers to continue investments in proven techniques like email marketing and free shipping promotions to drive sales.

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