eCost discusses comparison shopping ads and conversion rates (ECST 2Q05 conf call quotes)

eCost.com (ticker: ECST) disappointed the Street with its Q2 results. Revenues rose only 6% year over year and the average cost of acquiring a customer was $19.51, higher than prior quarters. While the average transaction size rose sequentially from $302 to $352, that reflected a shift in the sales mix to businesses and PCs due to weak consumer sales. The gross margin thus fell to 6.7% from 9.7%. You'll see from the quote below that eCost CEO Adam Shaffer attributed the shortfall to less efficient online advertising - lower conversion rates combined with stable price-per-click, which he believes is fixable. But arguably eCost, like many other online retailers, lacks differentiation and is therefore exposed to increasing price competition and declining customer loyalty as more consumers use comparison shopping search. (Note Mr Shaffer's reference to comparison shopping sites in the quote.) Excerpts:

One of the contributing reasons for our sales slowdown was advertising. We spent less on advertising this quarter compared to Q1, and what we did spend was less efficient. Although we focused our advertising spending in historically efficient channels, the quarterly results showed a less efficient conversion of consumer traffic to revenue in these channels. Although the average advertising cost-per-click remained about the same as prior periods, corresponding conversion rates were lower than historical levels.

To help us better understand these results, we recently retained an outside advertising firm to help us better analyze and interpret our daily advertising results on a much more granular level, resulting in better optimized advertising placement and product selection… This SKU-level optimization should translate to more efficient advertising spend..

…this …will help us better map our product data feeds to our online advertising partners, which should enhance our product offers to include more refurbished and closeout products, which have historically been a challenge to advertise through many of our comparison shopping sites. …many refurbished products have different manufacturing part numbers that differ from the original part number... Better mapping should help display these refurbished products alongside when searching for the current model…

(Quotes are from the CCBN StreetEvents transcript.)

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