In the first quarter of 2019, it became more difficult for retailers to make money on online sales.
The reason for this lies in the ever-increasing costs of marketing and all sorts of "chips", like free shipping, to attract new customers, which are becoming increasingly difficult to find. However, according to representatives of the analytical company DynamicAction, there are still ways for retailers to fight the negative trend.
The analysis was based on more than $12.4 billion in online sales in the first quarter of 2019. Of these, 5.3 billion were in the United States and Canada, and 7.1 billion in Europe. Overall, according to DynamicAction, revenue per customer for the first three months of 2019 was down 4%, compared to the same period last year. This was partly due to an increase in 8% orders that include free shipping, as well as an increase in marketing costs for 25%. At the same time, such growth cannot be called a record. So, DynamicAction CEO John Squire said that during the 2018 holiday season, marketing spending increased immediately by 92%. But despite a significant increase in advertising spending, the number of new customers fell by 11%.
According to Squire, over the past five years, the cost of attracting new customers has increased by 50%, while the average cost of an online order has changed very little. A significant increase in online competition has led to a decrease in profits. The complexity of the situation becomes apparent if you look at the range of products and brands available to the modern consumer.
A fair question arises - will it not be that the trend will continue and a constant decline in income from online sales will become the norm? Definitely not, but on the condition that sellers reconsider the sales models they use.
According to DynamicAction, one way retailers can increase profits is to keep a close eye on products that are selling well, reviewing their assortment at the start of the sales season to take full advantage of rising consumer demand. For brands that make their own products, this means that their factories must be ready to produce in-demand products before interest begins to cool.
Advertising and promotions
Retailers also need to be more careful with promotions. It often happens that sellers actively advertise a product that would sell well anyway. Is it worth giving a discount on a product that will be sold without it? With advertising in general, you need to be extremely careful. For example, if the advertised model is not available in black, then you do not need to use this color in advertising. This will only irritate the buyers.
Another key to profitability lies in the ability to identify the best buyers. At the same time, the best is not necessarily the one that buys the most. A customer might make a big purchase just because of an attractive discount or free shipping. At the same time, he can also bring friends and family members. Sales in this case will be high, but only incomes will be small. Ultimately, a regular customer who buys not very often and a lot, but always returns to your store, can bring more profit.
“We advise you to focus on your most profitable customers, look for ways to connect with them, and also find ways to rid yourself of your least profitable customers,” says Squire. It should be noted that this task is by no means simple, but the result will be worth the effort.
In fact, the tips from DynamicAction do not carry anything fundamentally new. Be careful with advertising, pay more attention to your regular customers, monitor trends. The only problem is that many sellers prefer to work according to already proven and familiar schemes, not paying attention to the rapid growth of competition.