Technology

When Ads Get Personal

Forget brand loyalty. In cyberspace, companies need to created loyal brands: a one-on-one relationship with a buyer in which the company understand...
Randy MyersSeptember 15, 2000

Anthropologically speaking, marketing is a pretty recent development. The advertising of products didn’t really get going until 1898, when fledgling ad agency N.W. Ayer helped National Biscuit Co. promote its Uneeda biscuit. Eight years later, W.H. Kellogg placed adverts for Corn Flakes in six Midwestern newspapers. By 1915, Kellogg was spending $1 million a year on advertising and marketing.

Since those early days, building a brand has become an expensive — but fairly straightforward — proposition. Carpet bomb the public with enough commercials, print ads, radio spots, and billboards, and eventually you end up with consumers who just can’t live without Super Lint-Away.

But if E-commerce prognosticators are right, all that may be changing. Gartner Group (www.gartner.com), a Stamford, Connecticut-based research firm, predicts that nearly 7 percent of all retail sales in North America will be conducted online by 2004. While that may be only a small slice of total retail sales, such a forecast still means that tens of millions of shoppers will likely be surfing the Net in a matter of years. With the proliferation of shopbots, intelligent agents, and point-and-click navigation, those consumers will have no difficulty taking their business elsewhere. As Bonnie K. Tonneson, a senior securities analyst with Chase H&Q (www.hamquist.com), in San Francisco, says: “[In a digital economy,] consumers control the reins.”

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E-tailers who ignore that virtual reality could well spend millions on ad campaigns that attract window shoppers, but not converts. What works for land-based companies — the carpet-bomb approach — simply won’t cut it in the connected, high-tech world of cyberspace. “Embedded in your new value proposition must be knowledge of your customers,” explains Tonneson. “[You must] also be able to offer them a smarter assortment of goods or services. That assortment can no longer be generic for every customer.”

That’s only the beginning. Besides wooing new customers, companies are going to have to work harder than ever to retain the ones they already have. “Consumers today are much more likely to leave a brand behind than they were in the past,” says Thomas Koulopoulos, president of the Boston-based Delphi Group (www.delphigroup.com). Indeed, some industry watchers believe the virtual world is forcing the business world to rethink the entire advertising equation. “Rather than expect unequivocal loyalty from the consumer,” says Koulopoulos, “brands must demonstrate loyalty to the consumer. The issue isn’t brand loyalty anymore. It’s loyal brands.”

Avant Gardening

If the issue is loyal brands, the question is: How does a company go about creating one? Pureplay dotcoms already spend huge amounts on advertising — with little income to show for it so far. While few E-tailers give out exact numbers on advertising expenses, SG&A expenses — a reasonable barometer of marketing and advertising spending — are much higher at E-tailers than at traditional companies. Drugstore.com, for example, spent 176 percent of its 1999 net revenues on selling and marketing (traditional drugstores typically spend around 20 percent of revenues on SG&A); eToys, 79 percent; CDnow, 61 percent; eBay, 42 percent; Amazon.com, 26 percent; and Priceline.com, 17 percent.

But Koulopoulos says creating loyal brands will actually cost companies less than creating brand loyalty. “It’s like using a Tomahawk missile as opposed to a squadron of B-52s,” he says. “Traditional push marketing not only wastes resources, it creates collateral damage. Pull marketing is driven by the target, making it orders of magnitude more cost effective.”

Unlike mass-market mailings and global ad campaigns, a loyal brand requires the personal touch. A loyal brand goes beyond price, beyond image. A seller must develop a one-on-one relationship with a buyer — a relationship in which the marketer understands and promptly satisfies the unique needs of each customer.

Although greeting a shopper by name is a good start — a la Amazon.com — it’s only a baby step in the creation of loyal brands. Besides customer-specific selling, online merchants must give consumers all the information needed to make an informed purchase — things like product reviews, price comparisons, and buying suggestions. While that’s nearly impossible to do at land-based stores, it’s become standard operating procedure for pureplay dotcoms.

Garden.com (www.garden.com), a high-tech site for home gardeners, features a sophisticated landscape planner and personalized gardening tips. Kid’s specialist eToys (www.etoys.com) offers gift suggestions based on age groups. Drugstore.com (www.drugstore.com) provides visitors with customer reviews. Not surprisingly, all three of these home pages repeatedly show up on Forrester Research’s PowerRankings (www.forrester.com) of the top E-commerce sites in the United States. “Information,” says Tonneson, “breeds intimacy.”

And a lack of information breeds contempt. BlueLight.com (www.bluelight.com), a preview site that replaced the old Kmart home page and that doubles as an Internet service provider, offers practically no collateral information or personalization. Gomez.com (www.gomez.com), a consultancy that evaluates Web sites, placed BlueLight dead last on its ranking of nine general merchandise E-tail sites.

Consultants warn that any online operator that skimps on content risks seeing its online branding efforts fall flat. Some click-and-mortar operators are getting the message. Last year, Williams-Sonoma Inc. (www.williams-sonoma.com), the $1.4 billion-in-revenues specialty retailer, added an online wedding and gift registry to the company Web site. The site, which allows couples to register for wedding gifts they’d like to receive, features a full array of information — from how to throw an Italian bridal shower to the correct gift for a second wedding anniversary.

So far, the combination of content and a customized online shopping experience has boosted the company’s overall bridal business — nearly 40,000 customers have registered with Williams-Sonoma in 2000, more than half through the online registry. Moreover, the specialty retailer is able to service its customers in a way it never could before — part of creating a loyal brand. “When someone goes into one of our stores, buys a bridal gift, and asks us to ship it to the bride, we don’t do a very good job of capturing information about that customer,” concedes Patrick Connolly, Williams-Sonoma’s chief marketing officer. “On the Internet, we do.”

In the long run, the information will enable Williams-Sonoma to conduct pinpoint marketing campaigns. “We have more marketing data than ever before,” notes Connolly. He also says that almost half the customers who purchase gifts through the registry are first-time buyers — a rarity for many online operators. “We’re getting a lot of new customers,” says Connolly. “We know who they are, and we can market to them.”

Brother, Can You Paradigm?

Of course, creating a more-accurate mailing list — while damned useful — hardly qualifies as a marketing revolution. And Werner Suelzer, Frankfurt, Germany-based vice president of NCR’s Teradata Solutions Group (www.teradata.com), headquartered in Dayton, Ohio, says companies in some industries fail to take advantage of customer information they already collect. Airlines accumulate a ton of consumer data, but rarely use it to improve products and services, argues Suelzer, who is responsible for NCR’s data warehousing in Europe. “They lack pain pressure,” he notes. “That is, they lack the incentive to make such data work.”

But some industry gurus believe advertising and marketing will soon be embedded into products themselves. Jerry Shapiro is one of those gurus. The executive creative director at marketing firm RTCdirect (www.rtcdirect.com), in Washington, DC, Shapiro sees embedded marketing as the logical next stage in the development of loyal brands.

Case in point: Viewers of HBO can currently go to the company’s Web site to find out which designers created the fashion apparel worn in the network’s series Sex and the City. But there will come a time, Shapiro predicts, when viewers will be able to order those fashions over an interactive TV set while watching the show. “Messages will be embedded in the content,” he says. “If you’re watching something that interests you, you’ll have the opportunity to buy it.”

With consultancy Jupiter Communications Inc. (www.jmm.com) predicting that 30 million homes in the United States will have interactive television by 2004, the possibilities are staggering. What’s more, as Web technology becomes more robust, so too will loyal brands. Dan Fine, at Aris Corp. (www.aris.com), a software and consulting firm based in Bellevue, Washington, says the new marketing paradigm isn’t just more effective, it’s also more efficient.

“Think about how much marketing is wasted now,” Fine says. He offers this example: “Suppose I buy a new car. Soon after, all these car ads keep coming at me — even though I won’t buy another one for four or five years.” By contrast, loyal brands will know exactly what to market to customers — and when. “You can turn off the sales marketing after I buy the car and communicate instead about service and parts and maybe a tell-a-friend program,” Fine continues. “Then, in four years, contact me about upgrading to the newest model.”

In short, the medium is the message and the messenger. That concept isn’t lost on managers at Chevron Corp., the $36.6 billion-in-sales integrated oil company. Already, Chevron is revamping its marketing strategy to take advantage of the marketing muscle of the Internet. Last year, the energy company began rolling out its Chevron Retailer Alliance (CRA), a Web-based initiative to link the oil giant to all its 8,000-plus branded service stations via the Internet. (The company also owns and operates about 700 other stations.)

Many of the selling and marketing activities once conducted by human account managers are now embedded in CRA. In the past, those managers would crisscross the country hyping Chevron and signing up gas station operators to participate in promotional events targeted at motorists. Now, the 3,000 or so Chevron station managers who are tied into the alliance learn about those sales and marketing promotions online rather than from a dedicated sales force.

“Taking administrative tasks and embedding them in our Web site allows us to deploy marketing programs instantaneously,” says Dale Walsh, general manager of retail marketing for Chevron Products Co. “It also allows our sales consultants to be just that — consultants and business partners with our retailers — rather than administrators running from one account to the next to sign operators up for the next great promotion.”

The CRA initiative seems to be working. Chevron not only needs a smaller sales force, it also saves money on phone and mail activities. “I don’t have an exact figure on how much we spent to launch CRA,” notes Walsh, “but I believe the efficiency gains have much more than offset the costs.” To date, those gains have helped Chevron pare its annual marketing expenses by a sizable $20 million.

Keep Up or Die

While loyal branding is still in its infancy, tools to support such a campaign are fast coming of age. Customer relationship management (CRM) software has improved dramatically of late, particularly applications that run on the Net (so-called E-CRM). In general, E-CRM software helps virtual merchants identify, track, and service online customers. It works, too. According to a recent survey of 300 companies by International Data Corp. (www.idc.com), a Framingham, Massachusetts-based technology research firm, corporate respondents expect customer relationship management technology to increase their revenues by about 8 percent.

A slew of vendors offer CRM and E-CRM solutions in the United States and Europe, including Aspect Communications (www.aspect.com), Cisco Systems (www.cisco.com), Clarify (www.clarify.com), Genesys (www.genesys.com), Siebel Systems (www.siebel.com), Oracle (www.oracle.com), and PeopleSoft (www.peoplesoft.com). Expect more to enter the fray. AMR Research Inc. (www.amrresearch.com), a Boston-based company specializing in enterprise applications, predicts that customer management software sales will hit $11.5 billion by 2002. That’s almost a six-fold increase from 1998 — a huge jump up.

GoIndustry.com (www.goindustry.com), a Munich, Germany-based, European online marketplace for surplus equipment, recently rolled out CRM software to support its cross-border sales force and E-commerce operations center. “One of the benefits of CRM is that it allows us to communicate with sellers and buyers equally well,” says GoIndustry CFO Drew Cherry. “The software is improving sales efficiency, compared with other channels, such as telesales, trade fairs, direct marketing, and so on. And most important, it improves customer service.”

Although Cherry concedes it’s difficult to know how well GoIndustry is doing at targeting its marketing spend to the most appropriate customer segments, he says the CRM software provides an important addition to the company’s brand-building arsenal. “It is equipping us for the first time to anticipate customer needs instead of react to them,” he explains.

Indeed, observers believe the next generation of intelligence software will help E-tailers create personalized marketing for customers who have never even been to a merchant’s Web site. One vendor, Andover, Massachusetts-based Engage Inc. (www.engage.com), collects anonymous behavior profiles of surfers, then uses the data to help marketers direct online ads at consumers whose Web habits suggest an affinity for that company’s products. “We help companies understand who their online audience is,” says Betsy Zikakis, Engage’s vice president of marketing, “and then personalize interactions with that audience.”

Getting personal is what loyal brands are all about. Etailers that spend millions to advertise brands, without considering how the brands could be used to facilitate consumer choice, may be headed for the dustbin of history. “The technology is available to everybody,” warns Tom Rosenwald, senior partner in charge of the advertising and communications practice at executive search firm Heidrick & Struggles Inc. (www.heidrick.com). “Brands that don’t keep up will die.”

Randy Myers is a contributing editor at eCFO. Additional reporting by Louella Miles in London.

Killing the Fatted Calf

One-to-one marketing — made possible by the Internet — is a bit like an antibiotic: highly effective now, but likely to become less potent if used frequently. The key to long-term success, say consultants, lies in judicious application. “E-mail is free, and that’s what bothers me,” acknowledges Patrick Connolly, chief marketing officer for specialty retailer Williams-Sonoma Inc. “We’re afraid that people will over-mail, and then our customers will increasingly not open the emails that we send them.”

He’s right to worry. According to the Direct Marketing Association (www.the-dma.org), an industry group, Web-based marketing, which includes email campaigns, is expected to grow faster than any other direct marketing category over the next three years. “We are very sensitive to how many times we contact our customers and what we contact them about,” says Connolly. “We view customer-relationship marketing and one-to-one marketing as a marathon, not a sprint.” Over the long haul, companies that send too many marketing emails risk alienating customers. “The concern is that we’ll kill the fatted calf,” Connolly admits. “We don’t want to do that.” —R.M.