Faced with an ongoing
downturn, many online retailers are being forced to closely monitor their
expenses and focus on profitability.
Struggling
e-tailers are frantically trimming their operations and focusing on their
bottom line.
The knack of
staying alive and online, however, undoubtedly lies in sussing the art of
exactly where to trim and where to keep spending cash.
“Many of the failed e-tailers of 2000 established business plans that
were intended to operate on negative gross margins for an extended period
of time, a fundamentally flawed business strategy,” stated retail
analyst Paul Ritter from the Yankee Group.
“Clearly, substantial gross margins are required by online
retailers looking to achieve long-term viability with their Internet
operations.”
According to Ritter, overspending on advertising and marketing gimmicks
has cost many e-tailers dearly. He
opines that those who are spending more than 50% of their revenues on
marketing are doomed to the dot-com graveyard – likewise, those whose
customer acquisition costs run above $20 to $40 per paying customer.
Ultimately
online customers must be given compelling and convincing reasons as to why
they should make a purchase on a particular site. Furthermore, customers must be coaxed into returning. Unless, e-tailers are effectively generating repeat business then
they are, in-effect, signing up for a listing in the e-obituary.
“Online retailers rarely earn enough gross margin to cover acquisition
costs with a customer’s first purchase,” stated James Vogtle, e-commerce
research director for the Boston Consulting Group.
“You have to have a customer come back in order for them to
become a profitable customer.”
“Customers must be able
to find the products and information they are looking for quickly and with
a minimal amount of effort and clicks,” noted Ritter. “Online retailers who provide their customers with multiple points of
customer support have the highest likelihood of success.”
