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Survey: E-Retailers Increasing Online Ad Spending, Web Marketing Efforts

Web merchants are retooling their advertising and marketing efforts -- by spending more online. That's according to new research conducted by online retailer trade association Shop.org and management/strategic consultancy The Boston Consulting Group.

The joint study, based on third-quarter retailing data reported by 94 North American e-tailers, found that average customer acquisition costs for Web pure-plays and click-and-mortar firms dropped from $40 per customer in second quarter to $20 in the third, as online retailers refocused their marketing spending.

And increasingly, that spending is going into Web work. The survey found that, in third quarter 2000, 64 percent of online retailers' marketing budgets were spent on online media, up from 59 percent in second quarter.

That news coincides with greater numbers of new customers shopping with e-tailers, according to the study. Web retailers that participated in both second- and third-quarter surveys saw a 28 percent increase in new customers, despite a 34 percent overall decrease in spending on customer acquisition.

"The ongoing dot-com market correction is far from having a negative effect on online retailing as a whole -- it has actually led online retailers to renew their focus on customer service, cost reduction and profitability," said Kate Delhagen, who heads Shop.org's committee on Internet shopping research.

Additionally, while 89 percent of surveyed retailers are launching holiday marketing and promotional campaigns, only 4 percent intend to increase spending on TV advertising.

"We've seen the industry mature dramatically over the last year," said James Vogtle, director of e-commerce research at BCG. "Online retailers have hit upon the right marketing mix to draw customers to their sites without breaking the bank -- and are seeing immediate results for their efforts."

But while the study asserts that online e-tailers are spending greater portions of their marketing budgets online, that heightened spending doesn't seem to be affecting online marketing and advertising companies -- many of which are still posting weakened quarterly revenues.

The Shop.org/BCG survey also looked at non-advertising or e-mail marketing efforts planned by online retailers for the holiday season, which include gift certificates (54 percent); offering shipping deals (40 percent); signing new or revised placement deals with portals and search engines (39 percent); signing new partnership deals with content sites (36 percent); and incentivizing purchases with a free gift (29 percent).

As expected, pure plays appear more committed to the Web this season, with 74 percent of those surveyed indicating that they do not plan to increase spending on offline direct marketing. Only 58 percent of click-and-mortal retailers said the same.

The study comes as part of Shop.org/BCG's ongoing research program, "The State of Online Retailing, " which has been conducted periodically by the two since November 1998.