Dot-coms to slash ad budgets as consumers buy on price

Consumers' online buying decisions are becoming increasingly based on price, not brand - a trend which is causing B2C players to slash their advertising budgets.

This new focus on price is being driven by reverse auction sites and other 'infomediary' services, which offer information on a range of competing retailers. These services enable informed purchase decisions to be made and take the importance away from the brand name in front of the dot-com. Research from the Butler Group suggests the multi-million pound marketing campaigns - which contributed to the failure of several dot-coms - are money down the drain, as online customers increasingly focus on the product, service and price rather than brand value. Ian Charlesworth, senior analyst with the Butler Group, said: "Traditionally people felt the need to create brand awareness to drive traffic to their sites. If infomediaries enter the market and provide traffic by directing customers to the best deal, brand value is taken out of the equation. Customers are directed to a site automatically. Whether they know that retailer or not becomes insignificant." Typically, B2C (business-to-consumer) dot-coms have been spending 12 - 20 per cent of their turnover on marketing. According to Alexander Kopriva, international programme director with research house Meta Group, many dot-coms are slashing their budgets to B2B (business-to-business) scale, with 25 per cent of US-based B2Cs cutting marketing expenditure by up to 50 per cent. He said: "B2C firms spun the shirt off their backs to the point where they bust. Now they're looking at B2Bs spending several thousand per country per year on marketing, instead of the millions dotcoms spend." Xelector, a start-up providing an infomediary service on finance related products, is itself taking a pragmatic approach to marketing. It has spent 2.5 per cent of its total budget on marketing in the past year and expects that to increase slightly to 3.5 per cent next year. Suzanne Deane, product manager for unsecured finance at Xelector, said: "We're not creating a brand name, we're not selling Xelector.com. An infomediary sells once to a web channel and then walks away, we don't have the overhead of attracting consumers."