4th Annual Electronic Marketing Survey – Online catalogers

It’s no secret that e-commerce has roared to life during the past year. According to a study by University of Pennsylvania’s Wharton School of Business, the average amount spent per person online during 1999 was $1,136 – up from $930 in 1998, and $411 in 1997.

With this growth of consumer Internet transactions in mind, let alone the increase in business-to-business Web commerce, the Internet is becoming a viable business venue for many companies. And despite the myriad gloomy reports about e-commerce’s prospects (Forrester Research, for one, in April predicted that most e-merchants would fail by next year), more companies are apparently now making money selling online. In April, Boston Consulting Group (BCG) released the results of a survey, conducted for Internet association shop.org, that indicates that four out of 10 Web merchants surveyed are now making a profit.

The BCG study also shows that business-to-consumer revenue across all categories of respondents (221 members of shop.org responded to the BCG survey) grew to $31 billion, with another $13 billion spent by businesses at retail sites.

Certainly, the respondents to our fourth annual online marketing survey (previously published by i.merchant sister publication Catalog Age), are leveraging the stupefying growth of online commerce. And most, in an effort to provide more options for customers, are also leveraging the power of multichannel selling, with a full 77% of respondents this year saying they operate both print catalogs and online catalogs – up from 68% in 1999. The increase could reflect the fact that more traditional retailers are launching electronic catalogs, as well as the growing trend of Web pure-play (online-only) merchants launching print catalogs as ancillary selling vehicles. Only 18% of respondents say they are print-only merchants, and a mere 5% of respondents are online-only.

Of the 82% of respondents that have online catalogs, 60% say they designed their Website inhouse, up from 56% in 1999. More striking, however, is that only 5% of consumer respondents outsource the management of their online catalog, down from 11% in 1999.

According to one marketer, the movement inhouse is not surprising, in that it reflects the growing need for control – and cost reduction. “We handle site design and management in-house for both quality- and cost-control reasons,” says Brad White, president of Midnight Pass, a Marshfield Hills, MA-based gifts cataloger/Web marketer. “In-house design allows us to have daily creative meetings, and we spend three to four hours a day on creative,” he says. When a Website job is outsourced, White explains, hours may lapse between the time the project is discussed and when the actual work is done, which can hurt the creative process. “Even if there’s a lapse of an hour, you don’t hold the flame of an outsourced creative agency,” he says. In other words, it’s best to have your creative people pumped up and dedicated to your project, on your schedule.

Since so many respondents are bringing online catalog design and management in-house, it makes sense that more respondents are also staffing up. A total of 17% of respondents have five or more employees working full-time on their Websites, up from only 9% with that number just last year. Consumer respondents had the most significant change, with 23% saying they have five or more employees working full-time on their Websites, up from 8% saying the same last year.

While cost savings may be the reason some respondents are bringing Website design and management in-house, the mean annual cost associated with maintaining respondents’ Websites has actually risen: to $43,600 this year from $40,900 in 1999, an increase of almost 7%.

But this average spending figure doesn’t tell the whole story. More than two-thirds (36%) of respondents are actually spending less than $10,000 annually to maintain their Website, and 26% say they spend only between $10,000 and $50,000 – by no means big numbers.

On the other hand, many respondents are spending much more to operate their sites: This year, 27% of total respondents claim they spend more than $100,000 annually to maintain their Website – up from 18% spending this much in 1999. Yet even at more than $100,000 per year, respondents aren’t really overspending on their sites, says Mark Hurst, president/founder of Creative Good, a New York-based Internet consulting firm. “$100,000 is actually a low figure,” he says, particularly if that number includes the salaries of employees who are working on the Website.

Goals and methods

Though the majority of respondents no doubt believe the customer comes first, it appears that respondents’ primary goal with their online catalogs is to make money. A full 65% of total respondents say the primary goal of their site is to sell product/generate profit, up from 46% whose primary goal was to make money in 1999. What’s more, only 18% of total respondents say the primary goal of their Website is to better serve their customers – down a full 28 percentage points from 46% in 1999.

According to White, the shift of primary goals is a reflection of the success of the industry. “Many sites weren’t smart enough to e-commerce enable their Websites until just a year or two ago,” he says. “And now they have a taste of victory, and they naturally want to make as much money as possible.” He cautions, however, that the respondents with the primary goal of making money online are putting the cart before the horse. “It is most important to earn the customer, and sales alone won’t do that,” he says. “You must have significant follow-through and customer service.”

But Hurst sees things differently. “I don’t think it’s anything negative that’s driving the profit-minded goal,” he says. “Catalogers are now realizing that the Web is not just a play toy; it’s a real, respected channel of business that can generate profit. And now they’re becoming more serious about competing with other sites.”

Respondents’ methods of promoting their online catalogs are a reflection of the quest for revenue, with 59% of respondents using e-mail promotion, up from 48% in 1999. Search engine promotion has climbed slightly, to 78%, up from 72% in 1999.

By contrast, there’s been a decline in the percentage of online catalogers that promote their Websites in their print catalogs. This year, only 75% of those respondents that have both a print catalog and a Website promote their online catalog via their print book, down 7 percentage points from 82% of the multichannel marketers doing cross-media promotion a year ago.

According to Hurst, this apparent declining interest in using the print vehicle to drive Web traffic is not really a surprise. “It makes sense to me,” he says. “Print to Web conversion is really difficult, especially when you consider it from the customers’ perspective: When a customer receives a catalog in the mail, and she’s sitting on the couch looking through it, why should she go through the process of getting up off the couch, turning on the computer and logging on to the Internet, just to look at the same products?”

E-mail promotions, however, do have a high click-through rate, Hurst says. “When a customer receives an e-mail with a hyperlink to a Website, her computer is already on and she’s already logged on to the Internet, so she’s much more likely to visit your site.”

As for the breadth of product sold on the Web, most respondents say they now offer their full line of merchandise online. In fact, 80% of consumer respondents say they now offer a complete product offering online, compared with just 59% saying this in 1999.

While the mean average order size for online catalogers increased from $113 in 1999 to $129 in 2000, the majority of total respondents – 54% – still claim that their print catalogs generate larger orders, down only 1 percentage point from 55% in 1999.

Consumer respondents, however, are experiencing an increase in online order sizes, possibly because more buyers have Internet access and are becoming comfortable shopping online. A total of 22% of consumer catalogers claim their Website generated larger order sizes than their print catalog, up from only 16% last year.

Security and privacy

Likely in the hopes of ensuring customers’ security, the percentage of online catalog respondents that offer a secure socket connection for Website credit card purchases has increased substantially from 1999. This year, 85% of total respondents offer a secure socket, up from 68% in 1999.

Privacy is also a hot-button issue, and online catalogers’ response to customers’ concerns is reflected in the user registration options they say they offer on their Websites. While 18% of this year’s respondents require customers to register on their site, up marginally from 16% in 1999, slightly more respondents are offering optional user registration: 34% offer registration on their sites but do not require their customers to use it, up from 30% in 1999.

Not surprisingly, online catalogers are still in the business of building customer files. A full 99% of total respondents now collect their customers’ e-mail addresses, up a point from 98% in 1999. What’s more, 22% of total respondents capture their customers’ product tastes, up from 18% last year.

The information that respondents collect correlates to how they use it. More than half – 53% – e-mail their customers special offers, up from 38% in 1999. And 14% customize their site according to their customers’ tastes, up from 11% last year.

But Midnight Pass’s White cautions that Web merchants should be careful in how they use the information they capture. “It’s an invasion of privacy to spam buyers, whether it’s opt-in or opt-out,” he says. “Rather than market to our buyers by e-mail only, we also send them direct mail promotions. They can’t `delete’ a mailed postcard – they will usually at least look at it before they throw it away,” White says.

If online marketers insist on e-mailing their promotions, he says, they must do so only to their opt-in buyers. “We’re finding that response from the general population is less than 1%, while our opt-in buyers’ response is up to 4%,” he says.

More bells and whistles

Though respondents say that providing better service to their customers is not the primary goal of their online catalog, it is apparently a concern to some, with many respondents providing their customers with more online features. A total of 26% of respondents offer online order-tracking, up from 20% in 1999. The percentage of those offering real-time stock availability has also increased, to 21% this year from 16% in 1999. Automatic calculation of shipping costs has become more prevalent, with 72% of respondents claiming that as a feature on their site, up from 66% in 1999. And more respondents – 86% – are e-mailing their customers with order confirmations, up slightly from 82% doing this last year.

But despite all these increases in Website services, our respondents are slipping when it comes to shipping time. The total percentage of survey respondents that receive, process, and ship their Website orders within 24 hours fell from 48% last year to 39% this year. What’s worse, shipping time has increased across the board: 45% say orders take 1-2 days for shipping, up from 40% in 1999; 10% say orders take 3-5 days to ship, up from 8%; 3% take 6-9 days, up from 2%; and 2% now take more than 14 days to ship Web orders, up from 1% taking this long a year ago. The percentage of respondents claiming to receive, process, and ship orders within 10-14 days held steady at 2%.

Hurst believes the increase in shipping time directly correlates to the volume of online sales. “I think industrywide that the volume of orders has gone up,” he says. “Fulfillment for some sites is not an easy thing to scale.” For some marketers, they may have moved from a couple of people stuffing envelopes to a whole warehouse operation.

“If online catalogers begin to think more strategically, they will start to realize that improving their fulfillment is a much better investment than implementing online order-tracking options,” Hurst says.

The evolution continues

For all of their successes, online catalogers are still evolving. The necessary number of employees and site maintenance costs have fluctuated, and the customer service options that Websites offer change from year to year. Even the goals of marketers have changed with the evolution of the business.

Considering that there is not yet one model for successful online selling and service, and that the growing pains for such a rapidly growing selling channel are only just beginning, it should come as no surprise if the trends in online cataloging continue to fluctuate for quite a while.

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