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As Economy Impacts Online Retail, Companies Shift Marketing Focus

The economy is forcing online retailers to change their marketing tactics in order to acquire and retain customers

The economy is forcing online retailers to change their marketing tactics in order to acquire and retain customers, according to findings from The State of Retailing Online 2009, the 12th annual Shop.org study conducted by Forrester Research Inc. (Nasdaq:FORR). The survey of 117 online retailers also found that, while the number of companies focusing on customer retention has nearly doubled in the past year, many retailers see the recession as an opportunity to capture market share from weakened competition. "The State Of Retailing Online 2009: Marketing Report," the first of a three-part series of reports based on the study, was released in conjunction with Shop.org’s Online Marketing Workshop in Scottsdale, AZ.

While Internet sales continue to outpace traditional retail sales*, companies are realistic about current challenges. According to the survey, half of respondents (54%) expect overall retail growth to slow during the next 12 months and 57 percent acknowledge the economic slowdown is hurting their company’s bottom line. That said, companies are bullish about web operations: four out of five retailers think the web is better suited than other channels to withstand the recession and one-third say the downturn has enabled them to capture greater market share. Illustrating the resilience of the web, retailers report that their conversion rates continue to hover between 3 percent and 3.5 percent as they have for years.

“Retailers everywhere are trying to get their arms around a pullback in consumer spending, and online retailers are no exception,” said Scott Silverman, executive director of Shop.org. “Online retailers are trying to weather this economic storm by doing more with less, making smart spending decisions, and leveraging effective, affordable tactics like email to grow their businesses.”

Under pressure from the economy, nearly one-third of companies (30%) are spending less than originally planned on web retail operations this year. Among retailers cutting costs, most (88%) will scale back hiring and staffing plans and slightly more than half (56%) will spend less on search. Others see the economy as an opportunity to increase market share and are charging ahead with new initiatives. Almost half of retailers surveyed (46%) have no plans to cut back original budgets and will spend as planned on their web business, while one in four retailers (24%) will spend more on their online business than originally planned. Companies planning to spend more will increase investments in several areas, including search (80% of respondents), email (65%), and social marketing (60%).

Despite the focus on customer retention, many retailers — primarily multichannel retailers — say their efforts at customer acquisition will be higher this year than last year. But for those retailers that operate primarily online, customer retention (which has historically been a distant second goal for this group) is now critical.

According to the survey, a majority of retailers (88%) list email as a high priority for the year, largely to retain customers. Almost three-fourths of retailers (71%) plan to send segmented emails to customers based on stated preferences or purchase data. In addition, more than half will use emails that highlight new product availability (55%), extend invitations to participate in surveys or garner customer feedback (55%), and feature online-only promotions (53%).

“Because consumers continue to spend online, interactive marketing spend to drive web sales remains a lucrative investment,” said Sucharita Mulpuru, Forrester Research principal analyst and author of the report. “While other retail channels struggle, eCommerce managers have a unique opportunity to drive more sales and test different tactics that resonate with consumers.”

"The State Of Retailing Online 2009: Marketing Report" is currently available to Shop.org members and can also be purchased directly at www.shop.org/soro. Forrester clients will be able to access the report directly on www.forrester.com as part of their subscription service starting on June 5, 2009.

"The State Of Retailing Online 2009: Merchandising Report," which will examine tactics to improve conversion rates and customer experience optimization investments and plans, will be released in July at Shop.org’s Online Merchandising Workshop. Additionally, "The State Of Retailing Online 2009: Profitability Report," which will explore company organization, sales and metrics, operations and fulfillment, and expansion, will be released at Shop.org’s Annual Summit in September.

Forrester Research, Inc. (Nasdaq:FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in business and technology. Forrester works with professionals in 19 key roles at major companies providing proprietary research, consumer insight, consulting, events, and peer-to-peer executive programs. For more than 25 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. For more information, visit www.forrester.com.

Shop.org, a division of the National Retail Federation, is the world's leading membership community for digital retail. Founded in 1996, Shop.org's 700 members include the 10 largest retailers in the U.S. and more than 60 percent of the Internet Retailer Top 100 E-Retailers. It's where the best retail minds come together to gain the insight, knowledge and intelligence to make smarter, more informed decisions in the evolving world of the Internet and multichannel retailing. Shop.org programs and activities include benchmarking research, events and networking communities.

* Earlier this year, Forrester forecast that US online retail sales in 2009 would grow by 11 percent to $156 billion. “Online retail sales” exclude travel and include the following categories: apparel, accessories, and footwear; appliances and home improvement; art and collectibles; auto parts; books; computer hardware, software, and peripherals; consumer electronics; event tickets; flowers; food and beverage; furniture; jewelry; movie tickets; music/videos; office products; over-the-counter medicines and personal care; pets; sporting; toys and video games; and other. These are not the same categories that the National Retail Federation tracks; therefore, the numbers are not comparable.

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