Shop.org's annual study of online retailing conducted by Forrester Research for 125 retailers predicts that online retail will rise 17 percent this year to $204 billion. The State of Retailing Online 2008 study forecasts apparel ($26.6 billion), computers ($23.9 billion), and autos ($19.3 billion) to be the largest three sales categories.

The report states that while free shipping offers have been effective in the past, retailers are less interested in promoting free shipping options this year. Instead, retailers are eager to experiment with "social computing" initiatives to attract customers: 65 percent and 55 percent of retailers, respectively, said that social network advertisements and widgets would be categories of increased focus this year.

The Shop.org report said social computing efforts to this point have been considered more effective for brand-building and less proven for driving revenue or sales conversion and advised retailers to continue investments in proven techniques like email marketing and free shipping promotions to drive sales.

Retailers reported that search engine marketing continues to be the most effective way to reach new customers, citing 35 percent of sales coming from that initiative. As a result, nearly all online retailers surveyed (90%) use pay-for-performance search placement, and 79 percent said they will make this tactic an even greater priority this year. Companies are also using offline marketing tactics to drive customers to the web, with catalogs and other direct mail pieces taking priority over methods like television and newspaper advertising.

According to the report, online retailers allocate 53 percent of their marketing budgets to online customer acquisition and 21 percent of marketing dollars to online customer retention. However, retailers are finding that traditional acquisition programs, such as search engine or affiliate marketing, may also serve as retention tools that attract existing customers as well as new shoppers.

Forrester Research principal analyst Sucharita Mulpuru, lead author of the report, said, "What's spearheading online retail sales growth is a tale of two shoppers that visit the web for very different reasons. The casual shopper goes online to look for the best price, leveraging the transparency of the Internet to save money. However, more affluent customers appreciate the convenience of shopping online and are not necessarily looking for the best deal. Retailers would be wise to recognize there are significant opportunities within both audiences and should market to them accordingly."

The State of Retailing Online 2008: Marketing Report is currently available to Shop.org members and can also be purchased directly. Forrester RoleView clients will be able to access the report directly as part of their subscription service starting on May 7, 2008.

http://www.shop.org/soro08