Why Most Marketers Will Fail Online
This horse-and-buggy analogy leads to the first major category of online failure, which I have dubbed "the groomers." These are the marketers still grooming the old horse as the rest of us move into the brave new world of automobiles.
Groomers are too busy with their animals to waste time on this new phenomenon called the Net. I see a lot of catalog direct marketers grooming their horses as this article goes to press. Their horses have been good to them, and they would like to keep riding the old nags deep into the next century. These marketers will almost certainly fail. They are victims of looking back instead of forward.
Although online marketers clearly are not guilty of looking back, they are not immune to failure either.
One common stumbling block among online marketers is branding, which is best done offline. Those marketers who are foolish enough to use banners and e-mail to brand themselves are in for a rude awakening. A marketer needs a better medium (such as television) to create brand awareness.
This situation might change in the future, but today's marketers brand online at their own peril. Companies such as Priceline, Furniture.com and Outpost.com understand this and spend their branding dollars offline. They have instinctively discovered that an ephemeral banner impression will not get the job done - no matter how targeted it becomes.
Many online marketers also are guilty of failing to calculate the lifetime value of customers. We have numerous clients flush with venture capital and IPO money. They spend it like sailors on leave, never considering lifetime value.
Following such a path is dangerous because if you continually spend more money to acquire a customer than the expected lifetime profits from that customer, you will never make it up in volume. Calculating lifetime value is largely guesswork at the beginning of the process, but you will develop a nice customer-value model over time if you remain focused.
The technology trap is another reason many marketers will fail. This happens when marketers search for solutions by employing technology as a substitute for a solid marketing strategy.
Technology experts push the envelope and like to see the walls crumble between marketing and technology. This is fatal because most of the people running around with pocket protectors have no clue how to market. Listening to these engineers is a sure way to fail online. As an example, let a programmer or techno-geek create your order form. This will ensure that you will have a complicated mess on your hands.
Another pitfall of online marketing is the savages of low margins. The Internet is a particularly competitive space for margin erosion, where the easiest way to compete is to lower one's price. But if your business cannot sustain low margins as a matter of regular operations, you will fail.
Wal-Mart built a business by making lower margins an integral part of its strategy. Contrarily, many online marketers have low margins not born from a thorough plan, but rather from an ad-hoc response to grabbing market share.
This leads to one last surefire way in which marketers are destined to fail: They listen to venture capitalists and investment bankers. What? Are these people not armed with MBAs, and are they not deal makers to boot? You bet they are; but they don't know your business. They have another agenda that has nothing to do with running your business.
Venture capitalists and investment bankers are more interested in creating a liquidity event for themselves and creating transactions (IPOs, mergers, etc.). They are likely to push you to gain market share at whatever the cost and are willing to put their money where their mouths are - all at an increasing level of dilution for owners.
Money cannot cure marketing ills. An excess of available capital gives a false sense of security. It can mask fundamental flaws in approach. No amount of money in the bank will solve a marketing problem - unless the problem is a lack of funds.
There are estimates that three out of every four online businesses will fail. This brief overview highlights some of the most common pitfalls those companies will encounter on their road to ruin.