Because television ad campaigns and marketing deals with the big Web portals can be so expensive, e-tailers want to make sure they are spending their marketing dollars effectively, explained J.P. Morgan analyst Tom Wyman. Many Web merchants are also cutting back on the freebies, discounts and other promotions they offered in their earlier days to convince shoppers to give them a try. Online sporting goods retailer Fogdog Sports, for instance, has scaled back its use of coupons. Bringing down customer acquisition costs is only half the battle for e-tailers, though. After all, a customer who makes just one purchase and never returns, or a customer who buys only discounted products, is not very valuable.
Online retailers are therefore determined to attract more repeat customers.
Ashford, for one, plans to launch a customer loyalty program that will offer repeat buyers early access to new products and personal shoppers. With so many investors demanding signs of profitability from online retailers, many Internet merchants are also building up more profitable business lines. Contact lens sales have gross margins of between 25 percent and 30 percent, said Bruce Mowery, More's vice president of marketing and business development. It has been adding products that bring in higher margins than drugstore basics, like toothpaste and deodorant, which carry gross margins of 15 percent to 20 percent. More has also expanded its product selection to include higher-priced consumer durables like cribs, baby strollers and air conditioners, with the purchase of Comfort Living in February.