A Market Correction That Direct Marketers Need

The stock market's past few weeks have not been pretty for many of the newest Web-based high fliers. The market will bounce back — to some extent — to a realistic level. The carnage in the technology marketplace, especially with business-to-consumer Internet stocks, has been blamed on various factors. Greed would be my best bet.

If you blow away the smoke and analyze the entire boom-and-bust rhythm of the marketplace, what emerges gives me — and probably all sensible direct marketers — hope. If these organizations, their venture capitalists and investment bankers understood direct marketing, they would have avoided many of the pitfalls. Make no mistake: The central concepts of many of these firms are well-founded. Nevertheless, they have been caught up in rhetoric and spending that direct marketers would have evaded.

When Internet companies did not meet quarterly expectations or sustained losses at a dizzying pace, we heard one central theme: “We were acquiring customers.” This magic phrase allowed for spending in the most outrageous fashion. Companies created marketing alliances that could be sustained financially only if they met their loftiest expectations. The alliance of DrKoop.com and America Online is one reported example, and DrKoop's accounting firm acknowledges the seriousness of its problems.

Obviously, no one told the folks at these dot-coms that the process of acquiring customers requires a formula and back-end system in order to create lifetime value — or some value — that results in a positive return on investment. Companies have thrown out the window basics such as RFM of acquired customers. Not just the business but also the basic knowledge were missing.

It has been happening with not only the wild spending on television commercials. Remember the Super Bowl? Bet you can't remember more than two of the dot-com names that advertised.

The spending on Web-based advertising has been just as frivolous. Many tracking organizations confirmed that banner advertising, unless directly targeted to an exact group, may be an ineffective method of advertising.

The banner may be the cousin of the compiled list in direct mail. For instance, a company uses a compiled direct list to reach a specific group of companies: Someone selling a plumbing part will want to reach plumbing companies — a targeted use of a compiled list. A company might place a banner on the site of a plumbing trade magazine to attract the same audience, which is a good use of a banner and most likely a successful one, assuming the offer makes sense.

In contrast, scattering banners across multiple sites is consistently proving to be a waste of money. Even with all the technology, including cookies, the gurus have forgotten one ingredient: buyers. No demographic or psychographic in the world is as good as a previous buyer through the same medium.

Unfortunately, the same technology-driven dot-coms are repeating the mistake of ignoring the basics in the e-mail arena as well. The entire focus has been on whether a person has opted in or out of a request. The request is just the permission to use that name in a promotion. Millions of dollars are flowing through the marketplace based on a phrase that results in little more than a respondent list. I am not knocking the concept of opt-in; I support it. The problem is that it is simply not enough.

The so-called targeting by site is not sufficient. As evidence, go to any copy of SRDS or online to MIN or any other database of postal lists. Any seminar or conference, book or guru will tell you that direct mail sold is what pulls best in direct mail. It is the same for e-mail and the Web. Asking a former buyer in the same medium to buy will be easier than getting a nonbuyer to buy, opt in or not.

Closely examine how many of the e-mail names in huge databases are buyers. If none are shown, ask the question, “How many of the multimillion names are buyers of any product or service?”

Some of the best-known and most successful opt-in groups are selling what in the postal world would be considered respondent, rather than response/buyer, lists. Respondent data has a role but should not be the central portion of any campaign. The Web is new by many standards, but before companies spend money, they should apply the same rules of direct marketing. Otherwise, we will blow budgets just as they were blown during the first phase of the Web, before the correction.

The Internet always has been a direct marketing channel. For too long, we let the techies and newbies control what takes place in the marketing sector of the Net. Before some of the gurus declare direct marketing unfeasible on the Net, we should apply principles to assure the success it deserves.

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