Marketing Pilgrim

I confess I am feeling a bit uneasy these days. These are interesting times to be in retail. Having been in business back in 2001, I know what a recession is like, but I also know that it is possible to survive and even flourish during bad times.

I remember sitting at my desk one morning going about business as usual. I happened to check Drudge and saw headlines that the World Trade Towers had been hit. At the time, I had just quit a consulting position and hired my first employee. My business was profitable but just barely.

I remember the shock well, and I remember telling my employee that we might as well quit working because we were not going to do any business. Sure enough, no orders came in the rest of the day except from one customer stuck in the middle of the woods somewhere that was blissfully ignorant of the attack.

According to the National Retail Organization, online retail should grow to $204 billion this year, which represents a 17% increase over last year. (Many experts predicted a 20% increase in 2008.) Considering the economy is in a slump, this is very welcome news to online retailers. I personally am not surprised. At Vitabase, our first quarter was up very dramatically over the same period last year.

As is normally the case, the top categories for online retail include apparel, electronics, and cars.

I am especially interested in some other data in the report. For example, 53% of online retailers are spending their marketing budget on customer acquisition while 21% are more focused on customer retention.

The real shift in thinking though is in the approach to social marketing and widgets. 65% say they are going to focus more on social networking advertisements (I am not sure if they mean viral campaigns or actually buying ads on social sites.)

According to Jupiter Research, only 2.6% of online shoppers use blogs for research before making purchases. Of course, that makes some internet retailers wonder if blogs should be part of their marketing strategy.

In my opinion, this study does not provide the answer to that question. It merely indicates that people do not research products on blogs. I have no doubt that this is true. It seems obvious that if shoppers want to research, they are going to go to highly authoritative sites. However, that does not mean that blogs do not offer marketing opportunities, and I know for a fact that blogs do generate sales.

Here are three benefits to blog postings:

1) Overall buzz about your company and products.
2) Consumer referrals. If credible and visible people talk about your products, it will help your sales. In fact, we track sales every day back to blog posts and forum posts.
3) Inbound links. Frankly, I think this is becoming less and less of a benefit as Google and other search engines continue to devalue these links.

Zappos has decided that it wants to be known more for customer service than discount pricing. It is eliminating its free overnight shipping guarantee as well as a guarantee to refund 110% of the difference between its price and a lower competitor’s price.

If you are not familiar with Zappos, they sell shoes and other clothing and are one of the largest online retailers (#31 according to Internet Retailer ). They also own a few other sites such as 6pm.com which is more of a discount clothing store.

According to CEO Tony Hsieh, this policy change took place because the goal of Zappos is to be known more for customer service than low pricing.

I find this situation very interesting for several reasons.

1-800-Flowers has launched BokayMe.com, a site that allows people to send virtual flowers to each other. The service is free for basic bouquets and up to $3 for enhanced bouquets.

I am 35, and starting to feel very out of touch. I can just imagine how my wife would react to virtual flowers. It reminds me of the guy in college who went around selling fake flower corsages (he claimed that his girlfriend never complained).

I am not a huge fan of 1-800-Flowers because of some things I know about the company and a presentation I heard from Jim McCann (their CEO) last year. That being said, this might actually work regardless of how dumb it initially sounds. Here are some reasons why.

Internet Retailer is reporting that Drugstore.com showed a profit of $156,000 on $118 million in sales. Of course, that is a pretty modest net income percentage (.1%), but it is a step in the right direction. For the year, Drugstore.com lost $9 million on $445 million in sales.

I love looking at these kinds of numbers. There are a few interesting takeaways that I see:

1) Slow growth. Drugstore only grew 7% in 2007 and they are projecting a modest 12% increase in revenue during 2008. This growth rate is far below the 20% that online sales are expected to grow across the board.

2) Online phamacy sales dropped. I am not sure what to make of this but pharmacy online sales are not doing well. In the case of Drugstore, they lost 26% of that business last year. I heard a presentation from Drugstore several months ago, and they indicated that over-the-counter health products are their future because of higher margins and less competition.

Internet Retailer reports this month that more and more online retailers are outsourcing their calls. In fact, they predict that spending on outsourced contact centers will almost double within a few years.

In our experience with call centers, I have learned the hard way that you should be cautious, very cautious when choosing one. Here are some things we have learned over the years:

1) Place a lot of test orders. Your business reputation is on the line with agents that probably could not care less. You had better check up on them a lot. When you call and place test orders, you will be amazed by some call center agents–amazed that anyone can be that stupid. Just remember that those people are reflecting on your brand.

I am sometimes a little negative about CPC advertising because I usually find it overpriced. On the other hand, Vitabase does participate on a limited set of keywords that work for us.

Recently, due to slow sales, we discontinued a certain product. Unfortunately, we missed deleting the associated Yahoo CPC campaign because so little money was being spent on it. Then the product got some very prominant press coverage that revived it dramatically. As a result, we had a huge spike in expensive traffic to a page that no longer existed.

Because of the amount of money involved, I personally called Yahoo! Search Marketing and explained the situation. I told them that we knew it was our fault, but asked if they would work with us. At first, they offered only a token credit, but then agreed to research it further.