Maintaining Online Profitability Staff

Updated · Apr 26, 2001

According to the Boston Consulting Group (BCG) e-tailers are risking their profitability by not effectively responding to customer demands — as a solution it suggests a five-pronged approach.

“Converting traffic into profitable customer relationships is a challenge few online retailers have mastered,” notes BCG vice president Peter Stanger.

BCG found, contrary to the rigours of the downturn, that online consumers are more eager to spend shopping dollars online than ever before. Despite the ongoing dot-com shakeout it predicts a 50 percent increase in online spending from last year. Nonetheless, BCG noted that online consumers are more “technologically savvy, and more impatient” — moreover, they are far more prone to disappointment.

“Online retailers aren’t keeping pace with trends,” notes Michael Silverstein, senior vice president and global leader of BCG’s Consumer Practice. “Consumer enthusiasm for the online channel is growing faster than online retailers’ capabilities … elusive profits will occur when online retailers get the profit equation right.”

Silverstein recommends a five-part customer satisfaction plan to help e-tailers remain profitable in an increasingly competitive online environment.
Online marketers need to address visitor-to-buyer conversion rates, unique visitor traffic, proportion of repeat customers, orders per customer, and ratio of repeat-order revenue to first-time order revenue, he suggests.

Realising the technicalities of a superior shopping experience aside, Stranger warns that cost-effectiveness needed to be merged with efforts at engendering customer loyalty. “A business model that is based on spending US$100 to acquire a customer who places a $50 order and never returns to the site is destined to fail,” he cautions. “Online retailers need to tailor their offerings for the high-value customer segment and cement loyal relationships with those customers by delivering a flawless consumer experience.”

“Making money means retaining customers, increasing their frequency of orders and ultimately reducing pure marketing costs,” concludes Silverstein.

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