The forces that may transform online DM in 2001 2000 BEGAN as the year of “s-commerce” (a.k.a. silly commerce), typified by a complete disregard for the direct marketing principles that are the backbone of non-retail store selling. But after the stock market soured in April and fought a downward spiral of grim economic indicators in the fall, mainstream thought eventually mirrored Winterberry Group’s prediction of a shift to “d-commerce” (direct commerce).
Today everybody wants to be a direct marketer, and the Internet has attributes – interactivity, accountability, sophisticated personalization and real-time feedback – that make it every DMer’s dream.
Winterberry Group believes that the following online DM trends will be the forces that reshape the in-dustry.
– Customer relationship management will be a mainstay. But the winners will be those that can acquire customers profitably. How quickly things change. E-merchants, supported by the strategies of online service agencies and consultancies, pushed for as many buyers as possible at any cost in 1999 and early 2000. After the world realized that profits drive value, e-tailers began maximizing the value of their customers and monetizing the value of their opt-in databases. Nearly all e-service providers have added a CRM specialization or re-engineered their businesses to concentrate exclusively on CRM.
There are two problems with this bandwagon mentality: Only DMers fully understand back-end database marketing, and a firm can’t refocus overnight. We suggest that companies with long-term-value-building perspectives continue to allocate at least 50 percent of their database resources to methods that can help them profit from new customers.
– E-commerce pure-plays will either meet their profitability forecasts in 2001 or go out of business. Venture capitalists and corporations alike have run out of patience with the oft-repeated promise that the Internet will change everything. In fact, when it comes to non-retail store selling, the Web changes very little, and DM principles prevail. Fatigued capital markets leave scant room for failed business models or missed budget projections, and e-commerce pure-plays are down to their last chance.
We believe that online marketers will prosper in 2001 if they have each of the following attributes:
(a) An integrated online and offline marketing program.
(b) Current or near-term profits without the need for external capital.
(c) An experienced management team.
(d) A dominant market position.
(e) An expansive vision supported by detailed plans.
– Pricing for online advertising will continue to evolve, with an emphasis on performance and long-term customer value. Internet pricing trends have developed many times faster than other media. Today, the industry focuses on CPA (cost per action), a concept that comes from CPM, or cost per thousand (the branding model), and CPC, or cost per click (for traffic building). CPA campaigns produce quantifiable and measurable actions that are most true to the per-inquiry deals of direct marketing – if the ad generates response, the Web site publisher is rewarded. But with pure CPA, Internet publishers don’t get credit for brand building. So hybrid advertising campaigns that combine CPC and CPA will dominate this year.
We expect this approach to develop further in the near future, taking into account the long-term lifetime value of the customer acquired. Eventually a CPL (cost per lifetime value) TV model will emerge that awards online publishers residuals throughout a buyer’s lifetime.
– Catalogers – due to experience significant increases in postage and paper costs this year – will likely see a fallout that resembles the recent bloodbath among e-tailers. Several thousand niche catalogs have sales of less than $10 million and margins of only a few points. Often those points are gained solely through list rental income, rather than from merchandise sales alone.
With the fourth postage increase in 10 years – combined with tempered consumer spending patterns forecasted for 2001 – it’s unlikely that many of these catalogers will be able to sustain the postal service’s 9.5% rate hike. We predict that they’ll consolidate, and that these new groups will need a strong niche position in order to decrease overhead costs. Large catalog companies will once again make their presence known in order to take advantage of this threatening environment.
– Direct marketers will begin to use interactive television’s targeted advertising and “t-commerce” (television commerce) applications. The number of homes with iTVs is expected to jump as much as four times this year to more than 5 million. Though it’s difficult for most consumers to see the need for another interactive appliance, early adopters will have to find and promote the killer applications, as they do with any new technology.
We think this will be the year when iTV begins to flourish in households that can be addressed for advertising and interactive t-commerce. And direct marketing will be a key component of this growth.
Direct response television companies, including info-mercial and home shopping services, will be the starting point for t-commerce. Many iTV providers – such as Random/Order, Commerce. TV, TiVo, Liberate and Wink – are already seeking DRTV partnerships. We expect this to be a key area for business development in 2001. D
This article is based on an excerpt from Winterberry Group’s executive intelligence brief, “InternetDM.”
– Marketing service providers to respond to marketers’ calls for integrated online and traditional DM strategies. They’ll hook up with other suppliers to facilitate mergers, acquisitions and investments.
– Online customers to make more purchases via links to contextually related Web sites.
– Comparison-shopping engines to gather steam as the smartest online consumers focus on price.
– Wireless advertising and related commerce applications to be tested in response to demands from an increasingly mobile society.
– Returns management strategies to become a focal point for improving Web marketers’ profitability.
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