Target Niche Markets for Online Growth

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Many people compare the new field of Internet marketing to the much older and established field of direct mail marketing and, specifically, niche catalogs distributed through the U.S. Postal Service.


The comparison is valid. The new methods of Internet marketing are the natural evolution of direct mail and catalog marketing. A site that tries to be everything to everyone will not succeed, just as general mail-order catalogs have struggled while catalogs targeting niche markets have thrived.


A look at how such specialized catalogs operate provides useful lessons for the online marketer.


Catalogers must deal with continually rising printing and mailing costs, which makes it crucial that they get the maximum return from their niche markets. But people who belong to a given niche market receive many catalogs. Those who are the most significant buyers within any niche tend to know the details of the products they are buying. They have probably read product reviews and have strong opinions about which products they might buy.


So how do some catalog sellers attempt to capture enough sales in a crowded niche market to survive? They aim at the fringe of the niche. They sell to those with a lukewarm interest in the area. These buyers like to view themselves as knowledgeable about the field in question, but at heart they are dilettantes.


Many people just getting involved in a specialty area will have their first exposure from companies that aggressively promote their catalogs to more general audiences. These catalogs will tend to be the expensive, glossy ones that will attract fringe customers who are not as knowledgeable about price.


Although Web marketers don't face the same pressure of rising printing and mailing costs as do catalogers, they also have to decide which type of customer they will target: the experienced niche customer or the customer at the fringe.


The traditional DM discipline of direct mail also has lessons that Web marketers can adapt.


Achieving success in direct mail involves testing. Small changes made to the copy, offer and package all affect response significantly. Direct mailers know, however, that response is not usually the most important factor. Most often, the goal is to maximize profits for a mailing. Depending on the price of the product in each test mailing, a 0.8 percent response rate might be far more profitable than a response rate of 1.5 percent.


It is the response to various test prices that will be used to set the price of the product when you roll out the offer to the entire mailing list.


But what would happen if you sent two different offers to the same customer? The customer would probably order the less-expensive product. What if the customer had already ordered at the higher price when he gets your piece offering the same exact product for less? The customer is not a happy camper anymore. He feels you took advantage of him.


The lesson is that direct mail price testing works because no one knows the offer made to the other guy. You can discreetly test, and then use the information to set the final price. And the price chosen will be a significant factor in determining the financial success of the promotional mailing.


Lesson 3 of Direct Marketing. You test offers. You test copy. You test teaser copy on your envelope. But, most important, you test price. Testing is used to determine what price is best for a direct mail product. Only upon finding the optimal price do you set the product's price.


Can you price test on the Internet? Is it possible a customer will only see one of your two offers? No. The customer will likely come across both offers and both prices. The Internet does not allow conventional methods of direct mail where you can test and then roll out.


Once a product is online, it is online for all to see. There is no ability to test only a small portion of a niche market and to make rollout decisions based upon the test. The Internet gives consumers more power and makes markets more price efficient. The Internet makes price comparisons easier when dealing with retail products. It doesn't matter if those products are within a niche.


Internet marketing is niche marketing. Direct mail is niche marketing. But, so is starting a scuba shop in California. All appeal to some small segment of the overall population, but the methods of direct mail do not roll over unmodified to Internet marketing.


The area of the Internet corresponding most to direct mail testing is Internet banner ad testing. Multiple banners can be run and you can measure the click-through for each banner, or how many people click on the banner and go to your Web page. You can examine what proportion of the people arriving from a banner are converted into online sales. You must factor out the site from which people are arriving for this to be valid.


Often the most important factor in growing a marketing-oriented business is not the rate at which you can get people to place their first order with your company. The real key is the rate at which you can convert first-time buyers into repeat buyers.


At present, Internet banners are relatively untargeted. But in the future banners will be highly targeted. Whereas traditional direct mail focuses upon getting lists of prospects who are all very similar and then finding an offer that is appealing to the aggregate, the evolution of Internet marketing will eventually target marketing right down to the individual level.


Computer programs, called recommendation engines, will be used to select the content to be displayed to a given consumer. Information about a given person, stored in a database or in some cookie-equivalent concept, will be used to help generate most Web pages. The individual customer profile will be used to recommend books, CDs and what banners are most appropriate to that particular customer, etc.


Pages will be dynamically generated to the taste of the customer. Take a look at netperceptions.com, a company in Minnesota which is a leader in developing software that works behind the scenes to recommend products. It really is amazing stuff.


This is the future direction of direct mail. While traditional direct mail is about testing and rollout and segmentation of people by shared proclivities and interest, one-to-one marketing will be much more up-close and personal.


Personalization will become very impersonal behind the surface. And the programming and data filtering demands will become relatively significant. Because of this, larger companies will be able to use the power of recommendation engines and such behind-the-scenes customer evaluation tools. At least for a while, much of this power will be too highly priced for smaller companies.


Companies that are making intelligent decisions about Internet business like amazon.com will acquire customers because they can provide a very customized personal shopping experience. But, these businesses are also aware of the need to be price-competitive. Ordering from the competitor is only a click away.


What does this all mean for the smaller business that has relied upon direct mailing of catalogs? Same question as always: Are you really marketing to a niche, or are you just nipping the fringe of the niche? If you have been nipping at the fringe of a niche, your life is going to become complex. But, if you satisfy the demands of the most price-conscientious and knowledgeable members of your niche, you should be well-positioned as you put your catalog online.
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