Move From the Frosting to the Cake

The Internet has revolutionized business and resulted in a new direct response channel, but a question remains: Will it cannibalize traditional direct marketing channels or support each other's growth? Today, most direct marketing firms have gone beyond the “frosting” and deep into the “Internet cake.” What have they found?

As with radio in the 1920s and television in the 1940s, there are always predictions of cannibalization when new media and methods of communication are introduced. And it takes the better part of a decade for a business model to evolve when a new technology reaches the mass market.

In 1922, sales of radios in the United States totaled $365 million. Everybody wanted to launch a station, and experts predicted dire consequences for the newspaper industry and other American institutions. There were predictions that radio would eliminate colleges and orchestras.

Next, consolidation took place. In 1924, 10 percent of stations were bought and sold. Many stations went out of business. Consolidation and failure hit the radio industry. In the United States, the business model finally became advertising. In Europe, it was government support by a tax.

Many experts thought television has more to fear from the Internet than direct response channels, especially among younger audiences. In 1996, the average woman watched more than four hours of television a day. The average child watched 2 1/2 hours daily. These numbers have fallen as Internet connections have risen. The good news for direct marketing is that people are migrating from DRTV, a medium where direct response works fairly well, to the Web, a medium where direct response can thrive.

“People are not shopping through only one channel anymore,” said Peter Fader, an associate professor of marketing at the Wharton School of Business.

It is interesting that newspapers are filled with stories of firms like Borders pulling their online operations, but you rarely read an article that says a major company is giving up on its catalog operation. If a firm gives up on any of its direct response channels, it takes away a whole point of contact with its customers.

The Otto Group, Hamburg, Germany, is the world's largest direct response marketing firm. It enjoyed sales of more than $22 billion last year. It owns Spiegel and Eddie Bauer in the United States and catalog titles in more than 23 countries. Its annual report is full of information about the positive effects of owning a full-range mail-order business, specialist mail-order catalog titles and combining them with the power of the Web.

Otto does not see cannibalization in this process. It sees enhanced growth. If customers are going to migrate their shopping habits from big-book catalog buying to specialty catalog buying to the Web, Otto wants to assure them that it owns the specialty catalogs and Web sites where its customers are going. If cannibalization exists, make sure it is a family member.

Experience shows that the Web and other direct marketing channels will support each other's growth. Today, the Internet has a “trust gap” with many consumers and businesses. One proven way to bridge this gap is with integrated communication using other direct response channels. Web companies are obtaining prospects and customers online, then reassuring them of their firm's stature and integrity by sending mail, making outbound telemarketing calls or offering 24/7 customer service via toll-free numbers.

The Internet, global as it has become, is still passive, while catalogs, telemarketing and other direct marketing channels are active. E-commerce has barriers, just like direct marketing, that have to be overcome in order to prosper.

DRTV entrepreneurs welcome the Web. To quote Jeff Posner, owner of a direct response firm in Chile, “You can build a business with DRTV, but you have to sustain the business via catalog. And the Web helps sustain the business, too.”

Business-to-business and business-to-consumer companies like Seton Name Plate, Gall's and Cryer Creek Kitchens make money by continuing to grow using direct mail while doing things to encourage order placing over the Web, where their profit margins are bigger. Traditional advertising tends to “build the brand” in many countries, while direct marketing is used to “ask for the order” and receive it.

“When consumers see more products, have access to information about products, they buy more products. Every direct marketing channel will benefit from the Web,” said Ben Gavish, editor-in-chief of Electronic Commerce Research Journal, an academic publication in this field.

It is interesting that experts agree the expansion of credit cards globally does not favor the Web over solo mailings, telemarketing or catalog shopping. All are made easier and more accessible by the expansion of revolving consumer credit.

Consumers are leveraging the Internet in different ways in the buying process. Some shop online and buy offline. Others go to the Web for customer service after their purchase or to obtain more information before buying by catalog.

According to Al Bell, director of strategic planning at J.C. Penney, the greatest opportunity is to convert online browsers to offline purchasers. This means you look online and then shop in a store or look online and pick up the telephone.

“When a customer shops online, via catalog and in store, the amount they spend is double compared to shopping with only one channel,” Bell said.

The companies that have the best chance to succeed are those that understand the power of the multichannel influence and do not view the Web and traditional direct marketing as enemies.

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