Online Retail Sales: Online Loyalty Equals Retail Gold
As an employee of an online advertising agency,
ICMediaDirect.com, I've got a sweet vantage for observing the
latest online retail numbers tumble in - and they're
spectacular. Third Quarter online retail sales were up almost
27% from the same period last year, while these first 20 days of
January were up 33% from the same period in 2005. This surge is
neither cyclical nor an aberration, but indicative of the
continuing and permanent shift of retail consumers to ecommerce
instead.
Naturally this is great news for online advertisers and
retailers. But it's important to remember that ecommerce has
outgrown its infancy. The big players in online retail have
established themselves and seem to know what they're doing. It
is important for advertising agencies and marketers to
understand the current success and mindset of online retailing.
Keen insight will be critical in recognizing and pitching
opportunity to advertisers in the upcoming year. Okay, retailers
know better than anyone how much money consumers are spending
over the Internet. They are realizing profits in their
respective fields. They also recognize a maturation process and
that the net number of new e-commerce customers will tail off to
non-growth levels. Some estimates predict this flat lining by
2010.
However, there is still important growth with maturity - and
that growth is in the average amount of money spent per online
customer. Instead of trying to grab new customers, retailers are
bending over backwards to retain existing customers. This is the
value play. Existing customers are being cultivated. The
retailer, be it Nordstrom's or Wal-Mart, wants the customer
feeling at home and free of anxiety within their website.
Instead of trying to be all things to all people online, online
retailing efforts of late are geared towards complementing their
"brick and mortar" locations. By complement, I mean soaking up
as much nitty-gritty merchandising as possible - and letting
store locations double as entertainment or advertising hubs. In
order to do this, though, the website must be a comfortable zone
for shoppers. Target is a fine example of a company whose
mission is to build customer loyalty on and offline. Their
online site regularly offers "insider" savings not mentioned in
print. I only know because their website announces this. The
design here is to build warm online association with the
customer and the brand's website. There is an overarching value
being placed on the online customer today because online loyalty
equals retail gold. Profit margins of today remain important as
ever, but a future where today's loyalty means increased
spending tomorrow is truly precious. This bedrock is being built
today. Amazon.com had a huge holiday season - they cited
particularly strong sales in jewelry and cosmetics. Jewelry is
going through a surge of online sales growth, up 29% over last
year. This is another example of a fundamental shift; this is
jewelry - not a fad, but a reflection of consumer trust in the
Internet. Moreover, of the top 50 online advertisers measured in
media value (according to TNS Media Intelligence) none are
expressly jewelers. Does this spell opportunity for an online
jeweler? Undoubtedly. And we'll see huge online advertising
efforts here in upcoming years, if not months.
Also of note: 15 of the top 50 online advertisers, in terms of
media space purchased, are financial companies. Another dozen
retail nothing. And there's only one travel company,
Expedia.com, in that top 50. This is pretty interesting because
travel is the largest sector of retail business done online.
Of course, most advertising money is going into paid search
advertising. However, the grumbling is growing amongst
advertisers within the PPC world. With such developments like
Google's Variable Term-Pricing (or, the death of free-market PPC
on Google) and big business customers (like eBay) flooding the
format, PPC has become a much more expensive proposition.
Advertisers will be looking once again at the more traditional
online advertising means. We will be ready.
And what will prospective advertisers see when venturing off the
paid search path? They'll see Classmates.com and the University
of Phoenix among the very top spenders in pop-ups and banners.
Well, I've got news - these companies, whose advertising means
can't compete with the bigger retailers, haven't been throwing
their money away. It works.
And this, folks, is an advertising void; call it an arbitrage
play within advertising. E-retail is going through the roof and
the advertising dollars haven't been following suit into all the
effective media channels.
Retailers are going to merge their online advertising formats.
Some ads here, some ads there - all bases must be covered. When
online customer spending is up 27%, advertisers shouldn't
concentrate all efforts into a single format. I can't speak for
other agencies, but ICMediaDirect.com is feeling an up tick in
the traditional formats of online advertising.
Online retailing has evolved. The Internet has gone from a cheap
place of doing business to a venue where a premium is placed on
customers. A seller has to do more than offer an agreeable
selection. Their job is to create a comfortable and trusting
interactive space, and in doing so, they'll need to sell
themselves through advertising online.