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Online E-Tailers Must Rethink Strategy

ORLANDO, FL — Contending that traditional online marketing strategies will fail, an advertising analyst said at the Gartner Symposium ITxpo 2000 here that promoters must learn how to target Internet “heavy purchasers” rather than all consumers.

“Customers are increasingly unsatisfied with one size fits all,” said John McCallum, a researcher at GartnerGroup, Stamford, CT. “Marketers should change the role of the customer from a product taker to a product creator.”

McCallum predicted that companies adopting customization as a key business driver would outgrow competitors through 2004. He cited Dell Computer Corp., which allows customers to design their own computers, and Charles Schwab, which helps put together a financial portfolio with its mutual fund evaluator, as examples of letting customers take part in personalizing their purchases.

What has complicated the marketing strategy, he said, is the Internet, which has shifted marketing initiatives from one-to-one relationships to a complex interaction of multiple users, activities and data sets.

“Once static and subject to regional differences, pricing is now dynamic,” McCallum said. “Regional price disparities are disappearing and companies that offer little in added value are exposed, and margins are stripped to their economic minimum.”

Moreover, the analyst insisted that multiple channels that display a single face to the customer would outplay a “pure-play approach.” “Selecting the proper channel strategy requires realistic and quantitative estimates of revenue from new and existing distribution channels,” McCallum said.

Picking the right channel strategy requires realistic estimates of revenue from new and existing distribution channels, he said.

“It is critical that realistic estimates of e-business revenue over time be used, and equally important to recognize when e-business offers a much more effective distribution channel than any currently in existence,” McCallum said.

“Prices are real-time, one-to-one negotiations or multiparty auctions,” he said. “Dynamic pricing is best used where high volume is important, products are commodities, excess inventory needs to be moved and price elasticity requires testing.”

Customizing offers will help to build customer loyalty and preserve margins, and McCallum urged marketers to analyze the buying behavior of repeat customers.

On other innovations, McCallum believed that interactive chat would be considered baseline services for sales and customer support by 2002, and that Web sites without this capacity would be considered deficient. Advertising has to give customized, fresh content on a regular basis to a segmented audience because its life cycle is short.

“Brand continues to be vital to success,” McCallum said. “A brand that exists in the minds and hearts of consumers is the most valuable asset the company can own.”

For the next two years, businesses that sell to consumers online also will use nontraditional income streams, McCallum said.

He cited as an example Buy.com's original plan to sell at below cost and profit from advertising revenue. As ad revenue declined, it started selling consumer electronics to supplement advertising. “Buy.com realized greater revenues by increasing margins, which consumers accepted, and migrating to a more traditional business model,” McCallum said.

In order to strengthen a brand, good service is essential. “Service outweighs reach and frequency, and the brand is challenged by a poor customer experience,” he said.

“Dell lets customers configure, order, check order status, obtain support and upgrade service online,” he said. “They can list and sell their used product at an online auction, and that kind of touch and customer experience [build] long-lasting relationships and [capture] customer lifetime value.”

The analyst suggested that marketers of time-sensitive applications should already be cutting deals with wireless carriers. “Branding and advertising on wireless devices [are] unlikely to be powerful until more robust view displays and faster access are in wide use,” he said.

He concluded that profit, rather than the number of hits, page views or conversion hits, will be the best measure of an Internet retailer's success.

“Attracting revenue in the first place is central to success. However, repeat revenue is the hallmark of a long-term success,” he said.

At least for the next two years, McCallum said, heavy Internet shoppers will account for more than 70 percent of online purchases. However, he said that after 2002, interactive TV would attract more revenue than the Internet.

“Marketers should understand and target heavy Internet purchasers by researching their current purchasing habits and marketing to them,” he said.

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