Petstore.com and Reel.com are among the latest in the e-commerce dead pool as Web properties continue to tumble. While experts agree the great shakeout is here, many believe Web sites that spurn frivolous marketing in favor of traditional marketing may survive.
Their opinions were bolstered by a study released last week that found brand recognition does not necessarily correlate with the amount of money spent on advertising campaigns.
Companies such as eBay and CDNow have significantly higher brand recognition per ad dollar spent than big spenders such as E*Trade and Ameritrade, according to the study compiled by HMS Partners, Columbus, OH.
EBay spent only $5.5 million on advertising in 1999, yet it had top-of-mind brand awareness among 22 percent of consumers in the first quarter of this year. CDNow spent $10.5 million and also had 22 percent awareness.
The losers in the brand recognition race appear to be the big-name online brokers. E*Trade, despite spending $124.2 million in advertising, had awareness of 5 percent. Its competitor Ameritrade spent $103.7 million and had 1 percent awareness.
As a result of the failure of this “spend now, earn later” attitude, basic marketing principles such as measuring the cost per customer and the lifetime value of that customer are coming into vogue.
“They have to get back to basics,” said Roy Schwedelson, CEO of Worldata Inc., a Boca Raton, FL, direct marketing list company that also offers e-mail services. “They're going to have to build a database that tells them who's visiting, who's buying and who returns, and they're going to have to listen to what these individuals or companies want from their organization. They have to use brick-and-mortar methodologies.”
According to Schwedelson, there are no marketing short cuts.
“They have a new slogan every day — one-to-one, CRM. There's no such thing as one-to-one marketing. It should be one to many. The many should be based on a good database backing up your Web site,” he said. “That's the lesson of the shake out. Those who will survive will become pragmatic and will understand that the database has to drive the business.”
These points are lost on the new generation of marketers, said Arthur Hughes, vice president for strategic planning at MS Database Marketing, Los Angeles. “Nobody knows what lifetime value is. They'll figure it out after they go under or are bought up by some company that is successful. Then they'll learn these things.”
One of the fallen, Reel.com, said it marketed effectively. However, despite being one of the category leaders, it just couldn't keep up with the overall market leader — Amazon.com. “Our prices are as good as everyone else's. We're just not as big as Amazon. They were strong competition,” said Sean Mahoney, spokesman at Hollywood Entertainment, owners of Reel.com based in Wilsonville, OR. “We think we were marketing it effectively. We were one of the top 10 e-tail sites.”
In the end, the fact that venture capital funding dried up too soon was the nail in the coffin. “For months we've been trying to find separate independent financing for it. The market is just not responding at this point,” Mahoney said. “We're curious to see what other sites do survive the current market.”
Climate aside, a lot of these companies are shooting themselves in the foot, said Hughes. “I see so many basic flaws in their approaches to marketing that you could right a book on how not to do marketing.”
The lack of the use of banner ads, for example, is baffling, he said. Banner ads are the equivalent of direct mail in the online world. “They are an inexpensive way to drive people to your site.”
The overall problem, according to Schwedelson, is that Web companies felt that the basic rules of business didn't apply to them up until now. “They have to realize they're in business. They're not in e-business. They're in business.”
