Editorial: Go Ahead, Kill the Goose

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Time to strike as many aggressive cost-per-acquisition deals with marketing services vendors as possible (conflict of interest here noted and acknowledged). That's right, bang 'em over the head until they beg for mercy. Look at their rate cards and laugh hysterically. Maybe even slap 'em around a little with them.

Better yet, take a lesson from the masters of the CPA deal, NextCard. The online credit card marketer's ability to use a so-called Internet database marketing system to hammer sales reps into submission made it a Wall Street darling. That is, until an announcement Oct. 31 that it would be "significantly undercapitalized" after banking regulators slapped restrictions on it as a result of mounting loan losses.

"The company believes that a substantial portion of these losses are related to fraudulent account origination activity specific to the Internet channel," NextCard said in a statement. Translation: A lot of guys named Elvis got loans.

Cheap leads are cheap for a reason. Customers acquired for a small amount are probably worth a small amount.

What's more, this early in the game, it's a safe bet that most marketers probably still don't have an accurate gauge of the lifetime value of customers they acquire online. Without knowing lifetime value, how the heck can a marketer know how much to pay for a customer? And the reported tendency of many CPA marketers to neglect testing means they're unlikely to find out, either, except for maybe the hard way, like NextCard.

Meanwhile, the Internet has truly emerged as an integral part of our daily lives. When phones were sporadic just after Sept. 11, we turned to e-mail. And as the crisis has continued, Time.com has seen a 653 percent traffic boost. FoxNews.com and ABC.com have seen a 437 percent and 321 percent increase in traffic, respectively.

Also, consumers are buying online in record numbers.

Analyst firm eMarketer predicts that online consumer spending will reach $10.7 billion in the fourth quarter of 2001, a record quarter for the Internet channel and a 20.2 percent increase over last year. Compared with the 2000 holiday season, 14.1 million more people will buy online this year, the New York firm predicted. And this from a company that likes to keep its predictions conservative.

Also, the online holiday shopping season kicked off last week stronger than the same week a year ago, according to Nielsen//NetRatings, New York.

E-commerce categories spiked across the board during the week ending Nov. 11, led by a 66 percent rise in shopping trips to toy sites, said a company statement. ToysRUs.com jumped 68 percent, while Lego.com rose 51 percent, according to Nielsen. NFL Shop, the 3-year-old direct marketing arm of the National Football League, claims that almost one-third of its sales come through its Web site.

Overall, 13 percent of catalogers' sales are coming through their Web sites, according to the Direct Marketing Association.

Meanwhile, the postal service is showing no signs of getting less expensive to do business with.

Marketers must look to the Internet not just for retention. The art of prospecting online must evolve as consumers spend more and more of their time there. That takes testing.

And the "I'll-give-you-a-buck-for-everyone-who-responds" approach that has become so prevalent is reportedly grinding testing to a halt.

But please, by all means, strike as many low-low-low, backbreaking CPA deals as possible. Blow through vendors' inventory with that take-or-leave offer like a Formula One racer.

The more one-sided CPA deals that can be struck, the faster the businesses that strike them and those willing to take too many of them will disappear. Then, the marketers who all along have been carefully testing for long-term, scalable tactics will own the medium.

We welcome your views, opinions, news tips and questions -- by phone to 212/925-7300, Ext. 220; by mail to iMarketing News, 100 Avenue of the Americas, 6th Floor, New York, NY 10013; by fax to 212/925-8754; or by e-mail to ken@imarketingnews.com. Letters to the editor must be accompanied by a daytime telephone number and may be edited for space.


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