Overstock justifies its higher than expected marketing costs (OSTK 2Q05 conf call quotes)

Overstock's (ticker: OSTK) Q2 marketing and customer acquisition costs were worse than expected. CEO Patrick Byrne stated on Overstock's conference call that marketing costs will fall when the company rolls out improved personalization and customer relationship management. But I've mentioned before that online retailers that differentiate themselves solely on price may find that customer loyalty is low as customers shop around for the best deals, for example with comparison shopping engines. As a result their marketing costs never fall enough. Excerpts from Mr Byrne's answer to an analyst on this issue:

…while it is true that the CPA has gone up, the marketing as a percent of revenue, I think we can bring it down from here… what we really look at is marketing as a percentage of revenue and subtract it from the gross profit… For every dollar we spend, we're actually getting over a dollar in gross profit. I don't think we actually save money by cutting online marketing at this point.

…I expected by this point to be improving conversion through CRM and through personalization. Those have been several months slower getting up than I expected. So what we're doing is… trying to keep our growth up… the dumb way, which is just with extra marketing spending.

My dream and sort of my expectation is that as CRM and propeller and personalization kick in and improve conversion and loyalty, then we can… trim back the marketing spending and… still be able keep up the hyper-growth.

But… this marketing cost that I see being up… is really a reflection on the fact that we weren't getting the growth we had expected through personalization and CRM…

(Quotes are from the CCBN StreetEvents transcript.)

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