Dot-coms Need More Than Just to Float

What a wonderful time to be in the advertising business. With dot-coms lining up to pour bucketfuls of cash into almost any medium that resembles advertising, there’s plenty of money to spread around to agencies and media channels.

Companies that didn’t even exist a few months ago are going after surfers and shoppers with huge budgets.

While e-commerce companies have succeeded at raising lots of money for a few brilliant (and many extremely silly) concepts, many have not been terribly successful in their marketing and advertising approaches. Dot-com income statements typically show massive advertising expenditures to achieve tiny sales.

Bad advertising and marketing are tolerated in this weird and wonderful economy, because for some reason, huge losses are now acceptable. Sites that have a questionable mass appeal are rushed to market, with the money raised via absurd valuations based on potential traffic and projected future profits as opposed to sales. The rationale is that visitors will someday miraculously turn to customers. This is flawed logic under any business model. To use a retail correlation, I might visit a store once or twice called “Just Gravy” out of curiosity, but chances are I won’t spend any money there. And spending $1 billion on a chain of stores selling just gravy (and even really nifty gravy-related items) might not be a good idea.

As a direct response advertising professional, it’s all a bit amazing to me. The truth is that most dot-coms are really just glorified hi-tech direct response companies, and the Web is just a new marketing and distribution channel – in many ways, just a new take on telemarketing. Accordingly, many e-commerce companies should be running their businesses like successful direct marketers would, instead of throwing money at bazillion-dollar ad campaigns only designed to appeal to 20-something hip creative directors and friends of the CEO. The solution for most of these companies is sometimes as simple as taking the following steps:

Admit what you are. Is the goal of your Web site to sell products and services on a direct basis to consumers? In an ideal scenario, would you like your advertising to directly correlate to sales? If you answered yes to those questions, then guess what, you are a direct response marketer.

Don’t be embarrassed – there is no shame in direct response unless you are marketing shady real estate courses. In fact, you will come to appreciate the efficiency and scalability of the marketing method. And most of all, if you do this right, your name could contain a rare adjective among e- commerce companies: profitable.

Operate like a direct response marketer. Once you have determined what you really are, then run your company the way a successful direct response marketer would. This means that your product and service offerings are tailored to consumer demand and return-on-investment advertising models. It means your advertising is designed to educate consumers about what you are selling and motivate them to buy.

It means you use trackable and accountable media that can be quickly adjusted for maximum profits. It means you are constantly dealing with issues like sweeteners, up-sells, cross-sells, continuity programs and lifetime customer valuation models. You will need to accept that most of your business will come from a phone call instead of a visit to your Web site, but business shifts to the Web every day. Most importantly, it means you only spend money on advertising that makes you money. As you build a customer base and fine tune the efficiencies of your advertising, chances are you may begin to run more traditional parallel brand advertising, but that will be in a later phase.

Work with people who understand the above. While the Web is a wonderful new place with untold promise and opportunity, the direct response world is much more established with processes and financial models you can depend on. Therefore, it’s important to work with people whounderstand those models. Most people who fail in direct response do so because of a lack of commitment and knowledge. Slapping your toll-free number and URL on a commercial does not make it direct response. It requires specific strategy and creative, true direct response media planning and buying and an efficient backend management system.

We will continue to see dot-com fortunes fall based on flawed marketing and inefficient advertising, but there also will be shining stars that admit who they are and build a successful advertising and marketing model. Maybe someone can even make that “Just Gravy” idea a success.

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