June 23, 2009

Customer Acquisition: Paid Search, Retail, Catalogers

Folks like Bloomingdales, J. Crew, and Williams Sonoma are cutting back on catalog customer acquisition activities. This Internet Retailer article helps outline the high-level discussion about customer acquisition.

Of course, you cannot talk about the real strategic issues in a 500 word article.

Retailers have a huge advantage, one that allows them to make strategic shifts away from catalog marketing. As long as there is some level of website/retail synergy, the website can grow from a very small minority of retail customers organically shopping online. Here's a typical relationship for a multichannel retail brand:
  • Website might have 100,000 customers --- 40% will shop in stores next year.
  • Retail might have 1,000,000 customers --- 5% will shop online next year.
  • Website gets 50,000 new customers from retail (1,000,000 * 0.05), allowing the website to experience rapid growth off of a big base of customers with a very low likelihood of shopping online. This allows the retailer to limit catalog marketing while still experiencing online growth.
Retailers also know that as many as half of paid search conversions happen in stores. This makes paid search a much more cost-effective marketing program when viewed across channels.

This is an area where retailers truly have an advantage over catalogers, and especially over online brands.

One of the most asked questions I receive is how to drive traffic to a website without the aid of stores and without the benefit of catalog marketing. Social media has been proven to largely be a failure at driving sales at a scalable level, and mobile is touted as 'the next big thing', not effective today. Without a doubt, we're in a valley, one where the old-school methods are becoming less and less effective, one where there aren't new approaches that scale to replace catalog marketing.

Many folks I'm talking with are creating strategic objectives for 2010 to find ways to drive new customer traffic outside of traditional analog methods. Retailers, though struggling, have an online advantage that they can leverage for a few years, until online brands and catalogers find new methods for driving new customer traffic.

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