Market Saturation: The Next Big Hurdle for Online Retailers

In the early days of online commerce, e-tailers knew exactly to whom they were selling. Internet shoppers were predominantly male, middle-to-upper income and techno-savvy. So it was relatively easy for online retailers to target their product selections and marketing messages, because there was virtually no need for market segmentation.

At this point in the game, however, e-tailers are faced not only with the enormous challenge of reaching and sustaining profits, but the even more difficult challenge of achieving profitability in a marketplace that has passed the initial phase of spectacular growth and is a virtual melting pot of different target groups.

"The online buyers' curve is really flattening out," Lori Iventosch, director of e-commerce research for Harris Interactive said.

According to Iventosch, growth in the number of people coming online from well-educated upper income households is "pretty saturated."

"It's becoming more of a challenge for online retailers," Iventosch told the E-Commerce Times. "Because if the growth isn't there, the question becomes: how do they get more of their dollars?"

One For All, All For One

If e-commerce demographics have shown us anything over the past several years, it is that the gap between the online "haves" and the "have-nots" is closing fast.

According to Internet measurement firm Nielsen//NetRatings, there are 181 million households with online access in the United States. "Given that there are approximately 285 million people in the U.S, we are getting towards high penetration," NetRatings' Sean Kaldor told the E-Commerce Times.

Kaldor noted, however, that there has been a slowdown in the number of new Internet users in the last six months. In fact, he expects the year-over-year growth of Internet penetration, which has recently averaged around 15 percent, to drop to a consistent 10 percent growth rate for the next several years.

Universal Behavior

This trend continues when factoring for age, income and gender. Though slight variations remain, the gaps are closing steadily.

For example, a recent study by NetRatings showed that the online shopping breakdown by age is extremely even across the board: 23 percent in the 18 to 29 age group, 27 percent from ages 30 to 39, 26 percent from ages 40 to 49, and 19 percent ages 50 to 64.

Recent research from the Yankee Group revealed that education has also become less of a factor -- as 51 percent of online shoppers have no college degree.

Yankee Group's Lisa Melsted told E-Commerce Times that from an age and income standpoint, just about everybody is participating in online shopping these days. "The differences between who is shopping online and who is not, I expect will probably stay pretty equal. It's sort of universal behavior now."

Which means more universal headaches for e-tailers.

Growing Pains

With fewer and fewer new shoppers coming online each year and so many target groups to market to, e-tailers have their work cut out for them.

"Because the customer base may not be growing, e-tailers need to capture more of their consumer's wallet," Iventosch said, adding that growth will have to come from things other than new Internet users, including offline marketing and other factors.

Closing the Gap

E-tailers will also have to look closely to find any differences in the buying habits of the various demographic groups.

For example, though the gap between males and females online has almost completely vanished, Iventosch said that men tend to spend more money and be heavier surfers before they buy, while female Web shoppers tend to prefer a few favorite sites and are generally more site-loyal shoppers.

In other words, Internet saturation should not cause e-tailers to run for the next panic button. At least not yet.

"There's still a population out there that haven't tried online shopping," said Melsted. "Online penetration will be at about 62 percent of U.S. households by the end of this year, so there's still 40 percent that don't have home access. Spending will still increase as companies learn better how to use the channel and try to integrate their online and offline efforts."