PRICELINE.COM FOUNDER Jay Walker stunned an audience at Direct Marketing Days in New York this spring by describing a new DM business model-one with close to zero printing, production, postage, lettershop and customer service costs. The message from DMDNY’s direct marketer of the year was clear: Welcome to DM over the Web.
Those of you who’ve been slow to adapt to the virtual world may take some comfort in a recent Catalog Age survey showing only 10% of the 1,000-plus consumers surveyed shopped online in 1998 (primarily because one-third had access to the Internet). Nevertheless, it’s safe to assume e-commerce will grow even faster than current projections, and that’s pretty fast.
But will the Internet really alter the fundamentals of the direct marketing business model? Not really-but there will be enormous changes in the way the basic model is executed.
DMers will still need to think in terms of customer acquisition and marketing. The most obvious is the shift from variable costs to fixed costs. In theory, it would seem there’d be no need for marketers to print and mail expensive promotion pieces, because customers would always have online access to catalogs filled with the latest products at the best possible prices. Everything would be just a few clicks away.
Of course, the trick is to get customers to go to your site and have them spend essentially as much time and money there as they would going through your catalogs or other print promotions.
(Actually, to maintain profit margins any one customer need not spend as much over the course of a year as before, because the variable costs of servicing that customer will have been severely reduced. However, the fixed costs of developing and maintaining a truly interactive site will increase, raising the volume requirements necessary to achieve fiscal profits.)
To keep things simple, let’s break this problem down into its two components: getting customers to your site and satisfying them once they get there, so they’ll return again.
Understanding whether your online customers are satisfied and what to do about it requires an entirely new set of measuring tools. In the print world we know how to measure the profitability of each page down to each square inch, and how to make adjustments from catalog to catalog.
On the Web, we will have the opportunity to measure the same elements (product, price, position, copy, offer and presentation) and the ability to make changes in real time, and even to distribute a customized catalog to each customer based on what we know about them.
Of course, even if we’ve fine-tuned the administration of our sites, we still have to figure out new ways to keep customers coming back. E-mail, especially with links to your site, is the most attractive vehicle from a pure cost perspective. Other incentives include reward points given for just spending time on the site; auctions; and traditional directmail to jog the memories of online buyers.
Remember that for the foreseeable future there will be significant numbers of customers who don’t have Internet access, or who simply still prefer to receive snail mail and print catalogs. Therefore, it will be critical for direct marketers to continually query customers about their contact preferences, and test to determine if what those customers tell you about their preferences should totally dictate the direction of your customer contact strategy.
But no matter how good your retention strategy, a flow of new customers is always required to grow a business. The fundamental rule of direct marketing-that the net present value of a customer’s contribution to overhead and profits must at least equal the cost of acquisition-still applies, regardless of what percentage of your business is done over the Web.
Fortunately, much of what we already know how to do in this area is still valid. We certainly know how to employ direct mail, print, radio and television to acquire new leads or new customers, whatever the customer’s eventual channel preference.
We’ll need to become smarter about using banner advertising, affiliate alliances and e-mail promotions, but those technological challenges aren’t as daunting or as exciting as the possibilities offered by the Internet.
Network
