As the holiday retail season has taken off, we looked at online retail data for the past two years to glean trends in the sector. Here are the key findings of our analysis:
1. Retail Spending will be 15-18% higher in Q4 of 2010 than 2009
An analysis of the spend trends of our retail clients reveal an obvious pattern. A predictive time series model reveals that retail advertisers will spend 15-18% more this year than in 2009.
Further analysis shows that all the increase in spend is coming from an increase in CPCs and not increased consumer click volume. CPC trends, shown as the red line in the above chart reveals that CPCs have kept more or less inline with spend changes. Thus, while the pool of consumers buying online have remained the same, advertisers have had to pay more to get them.
2. Consumers have become increasingly savvy in the way they research and buy products online
In the past two years, consumers been more doing more pre-purchase research than ever before. This trend can be gleaned from two data points. First, the average number of search impressions per click has increased by over 66% in the past two years. This means that the average consumer is less likely to click on an ad when they see one.
Second, with the increasing adoption of Facebook, mobile and other internet media, consumer buying patterns are a lot different than they were a few years ago. The Web 1.0 purchase funnel was simple; query, click and purchase. Web 2.0 funnels are more complex and take longer to convert. A look at retail Facebook data makes this trend evident.
Only about half of all transactions involving Facebook directly converted. The remainder involved another channel in the mix. Further, consumers clicking on Facebook ads take a longer time to convert than those clicking on search ads by a factor between 10x and 15x. As the average time spent on the Facebook platform continues to increase advertisers will have to adopt their advertising strategies to retain and grow their customer base.
Key Takeaways
1. Retail advertisers will have to spend more this holiday season
Retail advertisers are in an increasingly competitive environment and are having to pay more per click to acquire customers. However, they are also more profitable than they were a year ago and have increased their budgets by an estimated 16-18% this holiday season.
2. Value-centric consumer behavior that began during the 2008 recession is a continuing trend.
While the recession may officially be over, consumer buying patterns appear to have made a long lasting change. Consumers are now increasingly bargain savvy and are also dispersed with the increased adoption of mobile and social media.
3. Advertisers will have to use a holistic cross channel approach to attract customers
As Facebook and mobile adoption increases, advertisers will have to advertise on these platforms to reach consumers. Our research shows that consumers on these platforms interact with other channels such as search and display before they purchase. Hence, advertisers would be smart to use a cross channel approach to maximize performance on their advertising campaigns.
Dr. Siddharth Shah
Director, Business Analytics
