The Homa Files

Excerpted from the New York Times, “Web Sites Wage Holiday Price Wars,” by Claire Cain Miller and Brad Stone, November 20, 2008

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Internet retailers, trying to navigate the first truly dreary holiday shopping season ever on the Web, are engaged in price-cutting and discounting so aggressive that it threatens their profit margins and, in some cases, their very survival.

Traditional retailers faced the same problem, of course, but the price-cutting is fiercest on the Web, where customers can easily shop for the best price with a quick search on Google or on specialized shopping engines like Shopping.com. Online, the competition is only a click away. For many Web sites, the discounts and price cuts are the only way to hold on to customers as online buying unexpectedly plummets.

The research firm comScore reported that sales growth on e-commerce sites slowed to a meager 1 percent in October compared with the previous year — the lowest rate ever for online retail and well down from the industry’s typical 20 percent gains.

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To preserve the sanctity of their brands and some level of pricing control, some Web companies are promoting discount sites separately from their main brands. Zappos.com, a shoe retailer never runs promotions on its site. Instead, it quietly moves shoes that do not sell in six months to 6pm.com, a clearance site it acquired last year, but runs separately. 

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Free shipping is also becoming a painful imperative for all e-commerce sites. Three-quarters of online shoppers say that they would shop elsewhere if a site did not offer free shipping. E-commerce giants like Amazon.com can easily absorb shipping costs, but small online vendors struggle. 

To exacerbate matters, a major expense for online retailers seems to be rising: the cost to advertise products on the search engine Google, the source of considerable traffic and visibility for most e-commerce sites.

Over the last year and a half, prices for text ads related to women’s fashion have quadrupled, say apparel retailers. In the popular gifts category, the price to advertise alongside results for common search queries like “gift baskets” jumped 50 percent from the 2006 holidays to 2007 and is expected to climb again this year.

Edit by DAF

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Full article:
http://www.nytimes.com/2008/11/20/technology/internet/20slashing.html?ref=technology

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This entry was posted on January 8, 2009 at 7:00 am and is filed under Internet Marketing - eCommerce -, Mktg - Internet, Mktg - Pricing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.