Outlook 2005: What's Ahead for BTB: Rules of Access ChangingAGoogle's success story has far-reaching implications for business-to-business direct marketing. For online access and information, Google in 2005 is what AT&T was for telecommunications in the 1970s and 1980s. Direct marketing is about access, and Google and its competitors increasingly will control that access.
Another way of stating the online outlook for 2005 is that BTB search engine marketing will achieve wider recognition for its importance and its strategic exclusivity among BTB marketers. A few smart companies will understand that access will become expensive soon, and they will move to ensure they are members in the exclusive tier of search engine-accessed BTB marketing. Let's look at 2005 and speculate on what might occur.
Here comes a heretical concept: Buying no longer is a matter of who, what, where or how. Online purchasing is a matter of word description. In other words, I no longer will associate buying boxes with Uline. I will associate buying boxes with the words "packaging" or "shipping boxes" or "corrugated" or any of 58 other related words or word combinations. That is what Google and its ilk are doing: changing the habits of business buying, at least for some percentage of BTB commerce.
Let's look at another example to see whether we can grasp the future importance of online merchant reputation, service and trust. Ten years ago, not one of you would have sent a $5,000 check for construction water pumps to a merchant known only as email@example.com. This is a business you don't know, have never bought from and have no basis for entrusting with your $5,000.
Add a five-star rating system, a few reviews and you've got ... eBay! Millions of people send money to other people they've never heard of - safely and securely - and have no reason to trust, because eBay has changed the habits of purchasing. It is, in effect, controlling access.
Another DM organization will continue to change the habits of business buying: Amazon. Today, Amazon is a "must have" marketing affiliate for many BTB catalog and direct marketing companies. It's all about access. Amazon has changed the habits of buying.
In 2005, the momentum for thought-activated word purchasing will accelerate. Google, eBay, Amazon and their lookalikes will achieve growing importance in the future definition of BTB direct marketing. Cataloging will have a closer link to entities like Google's Catalog and Froogle links and will become as important for BTB as for consumer DM.
The Web and WorldNet: The World Wide Web is starting to die. It has evolved from its academic/military origin and has about reached the limit of its innovation quotient. From here on, expansion on the Web will be simply more of the same. We have reached a point where the concept of the Web must change in order for it to shed its impurities and morph to the next higher level of information structure evolution.
That next higher level is being conceived now. It likely will be called the WorldNet. It will have the Internet as one component, but will enfold wireless, satellite, business publications and databases, On-Star, utility meters for your water/gas/electricity, cell phones, cell phone photos, voice-over-Internet communications, landline telephones, iPods, inventory scanning systems, global positioning satellite systems, DVD archives, libraries, financial transactions, markets, business production and purchasing histories, demographic cells, employee health and benefits histories, education and training delivery and every other technological advancement and centralization and access control of information, all rolled into one ubiquitous WorldNet that will be accessible from any of thousands of system access points.
If you thought the Internet was all-encompassing, the WorldNet will be the megalith of informational structure, and you will be able to burrow into any part of it from anywhere using any technological access media you wish. Think of it as indoor plumbing for the mind. Turn on the tap and out comes whatever it is you conceived in whatever form you desired. This is the true technological frontier, and it is being described, planned and constructed as you read this. And a very few, very smart BTB direct marketers will begin explorations of how they will fit their businesses into this powerful technological structure to gain and control market share and competitive dominance.
Circulation: Circulation will rise in 2005. I predict a minimum 10 percent increase and up to 20 percent in certain niche BTB markets that still have low-hanging fruit and scalability. Those increases, however, will come as a combined channel increase; that is, some of the 10 percent will be in catalog, some in e-mail, some in telemarketing, etc. Inserts are suddenly a big deal. Other media and channels will boost overall circulation in 2005.
But circulation is a conceptual term. What will it mean in 2005 versus 2004? Clearly, the online emphasis is growing. The prospecting pendulum is again swinging to the upside. Customer acquisition, across all channels, is a high priority. Circulation also is a geographic term. A few bold companies are establishing early operations in India, a country with 300 million people who meet the U.S. definition of middle-class income and represent huge potential for business development.
Circulation for those companies is a very different concept in 2005. And let's be candid: Circulation once again will have to include international, as our country is becoming less important in the global economy that we all must compete in to grow. The early BTB experience with international DM in the 1980s and '90s will be seen as the first attempt for international expansion. The second attempt will be the one that creates multichannel, truly multinational BTB direct marketing companies, and at that point circulation is a whole new ballgame. And it begins in 2005. It must begin in 2005.
Prices: Prices in 2005 will rise 5 percent to 10 percent. BTB direct marketing companies will be able to take price increases. They will have to take price increases to cover increases in almost every expense category. The wild card is the effect of the pure-play "net gnats" that have re-emerged as strong players after the dot-com collapse.
There is a plethora of successful net gnats for almost any individual product you can think of. Where we once had competitors in office supplies, now we have individual Web competitors in just staplers or paper shredders. You can search for industrial blower deals at www.IndustrialQuickSearch.com and see what net gnats and search engine listings are doing to the previously mundane industrial blowers business.
These small, take-1-or-2-percent-share online businesses are proliferating, and they are masters of search engine marketing. After all, it's the only thing they have to spend money on since they have no facilities, catalogs, employees or other overhead expenses, just a drop-ship arrangement and a few computers and servers.
Branding and Multi-Position Marketing: It's on everybody's lips. Branding and private labeling in 2005 will continue to gain momentum among BTB direct marketers seeking to differentiate themselves and add perceived value. Any catalog company with solid name recognition can benefit from private labeling and a branding initiative. At the very least, it can add to the corporate valuation. But I think we will see branding associated with search engine marketing perhaps more than catalog name because there are so many more opportunities for a brand-keyword link. Suddenly the brand name and all the potential word descriptions of individual products assume new importance.
For some DMers who already have mastered multichannel marketing, the brand will offer the chance to establish two, three or more quality and price positions within the various channels.
As an example, a catalog has its name-brand products at the top end and uses all channels; it has a separate mid-quality brand for the Internet; and it has a third, clearance brand for both a low-end catalog or flier and a separate Internet site. The concept of capturing and dominating all three market positions is not yet common, but in 2005 it will begin. You heard it here first: After multichannel marketing comes multiposition marketing.
Wholesale Channel: In 2005, many BTB direct marketers will turn to the only remaining channel they can enter easily: wholesale. I said this in 2004, and some companies began tentative wholesale relationships. That momentum will grow. It is logical, and it is necessary to increase market share and to grow.
BTB marketers will be the main movers in wholesale for one powerful reason: inoculation against net gnats. If you have to spend huge amounts of money to combat interlopers in your space, why not sell to them and solve the problem?
Many catalogers will explore drop shipping for Net-affiliate merchants. Here is where your fulfillment expertise influences your channel choices. It might cost you on margin, but you may compensate in fulfillment revenue and overall volume, meaning efficiencies in filling fewer orders but larger orders for a greatly enhanced average order value.
Privacy and Other Legislation: Pray that Eliot Spitzer doesn't turn his attention to direct marketing next. With so much information directly and indirectly linked to the Patriot Act, there is every possibility of additional restrictions on information in 2005.
What remains to be seen is the industry's commitment to taking a stand on these matters and the (at long last) early dialogue that DM needs to improve its image. Perhaps there will be movement in that direction. My bet, however, is that additional erosion in information gathering and dissemination will be seen.
Developing proprietary prospecting databases, where feasible and affordable, may be the best answer. Clearly, taking full advantage of cooperative and shared databases makes a lot of sense. Now is the time to do as much prospecting investment as you can, before the next postal price increase and before more stringent restrictions are put in place by legal zealots and the Federal Trade Commission.
Acquisitions: Putting aside the "bigs," those mega-companies of direct marketing that already have bought up everything they can find, we will see the acceleration of small- and mid-market consolidation in BTB direct marketing. Companies in the $10 million-$50 million range will look for $2 million-$15 million multichannel direct companies to buy. And the $4 million-$15 million companies will look to buy even smaller ones because they need to grow, too.
These mostly will be strategic buyers who need more market share, more customers, more revenue and the economies of scale that drive lower costs. Private equity funds, however, likely will get even more aggressive, as they have massive amounts of investment money to put to work, and direct marketing remains an attractive segment for them because of the multichannel efficiencies and the huge jump catalogers had over retailers and other channels.
Customer Service: Though the failed promise of CRM is anathema to me generally, a real chance exists that 2005 will bring yet further erosion to customer services, which have all but fallen irretrievably into the clutches of these inane CRM systems. Worse, it doesn't appear to matter.
As with healthcare, education, taxation, politicians or anything else you care to name, the American public seems perfectly resigned to being pushed around, ignored, stepped on, lied to and treated with contempt ... and comes back for more.
I cannot think of a year that was so bad for basic customer service than 2004, and I fear this year will be worse. There are shining examples that rebut this assertion, but they are growing rarer and they are giving up a little bit at a time. This year likely will see direct marketing and cataloging drawing closer to the customer services delivered by retailers, and that is about as low as it goes. Why do we do this? Our industry was built on great service.
Donald R. Libey is managing director of Libey-Concordia, an investment bank for the catalog and direct marketing industry with offices in Philadelphia and Cherry Hill, NJ. His e-mail address is firstname.lastname@example.org