Internet-Only Retailers Form Loose Alliance as Markets Get Tough

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A slowing economy and stiff competition from entrenched brands have convinced a band of Internet-born retailers to form a loose alliance.


Consumer electronics store 800.com Inc., diamond and jewelry retailer BlueNile.com and luggage seller eBags.com have formed a caucus to share information and exploit each other's strengths.


"It's a challenging economy right now and it's a challenging time for Internet-based companies, and we're all trying to get our companies to profitability as quickly as we can," said Tim Zuckert, vice president and chief marketing officer at 800.com, Portland, OR.


"A lot of competitors have gone away, but we have new competitors that are the traditional bricks-and-mortar retailers," Zuckert said. "Because we're all sort of specialists in our categories, there's a shared goal of wanting to be the best that we can possibly be within our categories."


The information collaboration, which aims to share best practices, took root four months ago. Zuckert approached his counterpart at Seattle-based Blue Nile and then roped in eBags of Denver. There is no formal name to the alliance.


"What we've gone out and done is formed a group of noncompeting vertical market retailers who are primarily in the online space, and we're kind of learning alongside of each other what works and what doesn't," Zuckert said.


Shared issues can include consultation on technical matters or even a marketing program under consideration by one of the alliance members. Sometimes, exchanging thoughts brings up a potential partner that the alliance member had not considered.


Take 800.com's recommendation of MySimon, an online comparison-shopping service, to Blue Nile.


"In conversations with Blue Nile, we mentioned the fact that we're working very closely with MySimon and we're getting really nice results from our program that we have with them," Zuckert said.


"It wasn't an account that I believe that they were working really closely with," he said. "I don't know if they've done any type of an agreement or even contract with them, but it was just an example of where we can suggest here's a place that seems to work very well for our customers."


From 800.com's experience with MySimon, it seemed that the shopping service appealed to consumers who were looking for a specialist in a particular category.


In another instance of shared knowledge, the companies were discussing catalogs and direct mail. Internet-only retailers that are seeking a more established shopping channel increasingly are resorting to these tactics.


For such Internet-only retailers, traditional direct marketing raises many questions: How can they track sales and attribute the performance to the appropriate channel to ascertain whether the tactic or strategy is working?


"That's one area where Blue Nile had some interesting ways they were sending people from their catalogs to their Web site and capturing some data that would tell them that this is definitely somebody who received our direct marketing," Zuckert said.


In fact, 800.com compared Blue Nile's tactics with its own and saw some similarities in the information-capture process. While 800.com provides source codes in its catalogs, it also has a field after the transaction page asking how the consumer heard about the retailer.


Blue Nile tends to include content in its catalogs that sends customers to a specific URL where they can access additional content. It also includes unique product identifiers in its catalogs so that Blue Nile can identify the catalog recipient when that code is entered.


"The blending of those two different ideas gives us a nice opportunity," Zuckert said. "We haven't done it yet, but we benefit from that information."


The alliance is in talks to include two more Internet-only retailers. Zuckert would not disclose names, saying that, for the moment, the alliance had enough varied experience for valuable information exchanges.


Discussions may include participation from executives ranging from CEOs and chief operating officers to chief technology officers and heads of operations and marketing. Zuckert's key contact at Blue Nile is the director of marketing, and at eBags it is the CEO.


It also helps to have common investors for such alliances, and repeated bump-ins at trade shows foster trust for such nonbinding collaborations.


"There's no investors [in] these companies that are also invested in competitors of ours," Zuckert said. "They're not in businesses that are competitive to ours. There's nothing that we share that we're contractually not permitted to share."


Informal collaboration over the months now may result in more cemented ties among the three Internet retailers, however.


"I think the next step for this group would be probably there's some joint marketing opportunities that we might engage in together, but that's really not the point of having these discussions with them," Zuckert said.


"It's not really so much that we can come up with a way to market to all of our customers," he said. "It's more just to understand. We're working very hard to be successful companies in our own right -- you know, what are ways we can complement each other to be able to do that more quickly."


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