The heat is on e-commerce companies to prove they can grow their businesses throughout the year--and investors aren't so sure they can.
This week, reports that industry stalwarts Amazon and Toysrus.com struggled to deliver goods this season drove share prices in e-commerce companies down, while raising skepticism about whether e-tailers can convert first-time shoppers into loyal ones.
"The first thing e-tailers had to do was make sure their customers had a good [shopping] experience during the holidays," said Jack Staff, chief Internet analyst for Zona Research. "After that, the name of the game is personalizing their service."
To date, the online retail industry has paid little attention to personalizing their products and driving customer loyalty, according to industry analysts. In a June report by Internet research firm Forrester Reserch, only a third of online stores had implemented "customer loyalty program," efforts to build long-term relationships with consumers.
But the methodology for online success is changing. Forrester has found a shift in thinking among Web executives: Where once they concentrated on acquiring new customers, they now are focusing more on locking in frequent buyers.
"We want to make sure they remember us," Borders.com spokesman Rich Fahle said. "Right now, it's vital that the new customers stick with us."
In coming months, e-tailers will attempt to embed their brand names into customers' psyches and win long-term support through a variety of traditional and Internet-savvy methods.
Online grocer Webvan, for instance, is expanding its delivery service and increasing product offerings in the New Year. Online bookseller Borders.com and DVD merchant DVDExpress will send gift certificates to new customers.
In addition, DVDExpress is revving up a program that rewards customers who refer friends to its Web site. Called the "Buddy System," customers who send others to the site will receive a $10 gift certificate for each new shopper. The new customer will also receive a $10 gift certificate--good with any $25 purchase.
"If we don't capitalize on the increased sales of DVD players, we're nuts," said Susan Daniher, vice president of marketing for DVDExpress.
Online luxury goods merchant Ashford.com is putting a technological twist on an old strategy. Instead of mass mailing its customers, like traditional retailers, the Houston-based company will mail customized offers to each of its shoppers, featuring goods the company has reason to believe the person will buy.
Ashford has this ability through software by Net Perceptions that analyzes a customer's purchases and then projects what the customer might buy in the future, according to Ashford chief financial officer David Gow.
"We can figure pretty closely what type of person buys a Tagheuer wristwatch," Gow said, referring to a brand of watches that ranges between $400 to $1,800. "We know that the person who buys this watch is likely to buy other specific items as well."
Because consumers don't purchase high-end items such as watches and fine jewelry often, Ashford has expanded its offerings to include sunglasses, pens and fragrances--products that customers buy more frequently--in an effort to keep customers returning to the site, Gow said.
"The margins are less on these types of products," Gow said. "But if they buy these smaller-ticketed items from us, then they will think of Ashford when the time comes to spend on the higher-end products."
But if e-tailers aren't careful, all the marketing and promotion could alienate customers.
"Online marketing has become very sophisticated, but companies must prevent overdoing it," Zona's Staff said.
For its part, leading online retailer Amazon is planning little to tap into new customers. Lizzy Allen, Amazon spokeswoman, said that among the company's more than 9 million customers, about 60 percent are repeat shoppers. "We turn all our attention on customer service and making sure they enjoy their shopping experience," she said.