..........ON INTERNET MARKETING....Interesting Reading.......
=======================
ARTICLES ON WHAT E-tailors ARE DOING
======================================
zdnet.com
Secrets of Spiral Branding
Jesse Berst, Editorial Director
ZDNet AnchorDesk
The marketing world is in an uproar over the implications of the Internet. As Business Week reported, "harnessing the Internet to build and maintain brands has become the Holy Grail of marketing."
The Internet does indeed open new possibilities -- and new dangers for anyone who ignores the signs. The advent of Internet sites and Internet email make possible a new form of marketing I call "spiral branding."
I want to bring this to your attention for two reasons. First, as consumers it pays to be aware of the tactics marketers are using to influence us. Second, many of us will need to understand and use these techniques ourselves, in our own businesses.
The word "spiral" describes the accelerating benefits of a positive feedback loop. Bill Gates, for instance, often talks about the upward spiral of his Windows business. Because there is more software, customers purchase more Windows machines. Because there are more customers, developers build more software. Which attracts more customers. And around it goes (and grows).
THE BRANDING SPIRAL
Savvy marketers use these concepts to create a three-stage branding spiral. First, you use TV, print or radio to get people interested and send them to the Web. Second, you use the Web to get those customers involved (via specialized content and interactive services). You also collect their email addresses. Third, you use email to remind and incent them to return to TV and the Web again. Email closes the loop and starts people around the spiral again.
An example. A sports channel reminds you to visit its Web site. At the site, it involves you with an interactive fantasy league. Then it uses email to remind you to return to TV for the pre-game show.
See how it works? Let me take you around the spiral a few times, using different words to illustrate the role of each medium.
TV/Radio/Print - Online - Email
Interest - Involvement - Interaction
Passive - Active - Interactive
Attention - Intention - Retention
Richness - Rewards - Relationship
KEYS TO SUCCESS
The keys to spiral branding are:
Use each media for its best purpose (for instance, don't try to create a TV experience on the Web)
Do it fast (get something up now and fine-tune as you go along)
Iterate constantly (make improvements each time around the spiral)
I know you're busy, so I won't try to get into all the details here.
If you want to know more, I asked our Web columnist Annette Hamilton to discuss how to make best use of each medium. She also has success stories to share. Click for more. In addition, after I spoke at the recent Intelliquest Brand Tech Forum on the subject of spiral branding, I transferred my Powerpoint presentation into HTML. Click to view all or part of the presentation.
=====================
E-Branding is More Important Than Ecommerce. Here's Why
zdnet.com
Annette Hamilton, Executive Producer
ZDNet AnchorDesk
Let's try a little free-association. I'll say a word, and you note which company comes to mind first:
Jeans. (Company:________)
Overnight. (Company:_________)
Clothes. (Company:________)
Software. (Company:________)
Your answers reveal how well-branded a consumer you are. I bet your list looks something like this:
Levi's
FedEx
The Gap
Microsoft
In traditional marketing, "branding" campaigns are designed to embed a company or product name in your consumer psyche. Firms often use a combination of persuasive, emotional advertising campaigns and public relations to encourage a link between a positive "feeling" and a product. If it works, it can make you want to spend your hard-earned money as fast as possible.
Online companies are putting branding to work with remarkable success. Research shows the brand names of seven Internet companies are already recognized by more than 50 million U.S. adults, giving them 'mega-brand' status. According to Opinion Research Corporation International, the following Net names are top-of-mind with Americans regardless if they have used the Internet: America Online, Yahoo!, Netscape, Amazon.com, Priceline.com, Infoseek and Excite.
And when Intelliquest asked 10,000 randomly selected Internet users -- unaided by a list of possibilities -- to name brands they associate with the following products, the following Net companies sprung to mind:
Books: Amazon.com (56%)
Music: CDNow (24%)
Computer Software: Microsoft (30%)
Computer Hardware: Dell (20%)
Clothing: The Gap (12%)
Travel: AOL, Yahoo!, Travelocity (each 8%)
Autos: Yahoo! (6%)
Still, a debate rages in the business departments of many Internet companies over the importance of branding. How much effort should they spent on e-branding initiatives, that is, building up an online brand? Wouldn't those resources be better spent promoting ecommerce efforts -- which offer tangible returns?
Let me lay that controversy to rest right now. In short, e-branding is more important. And it must come first. Because few people will buy your stuff -- online or off -- unless you are top-of-mind.
We all know that ecommerce is taking off. But people still shop online more than they buy online. According to Intelliquest there are four times as many online shoppers as purchasers. And they are making their buying decisions. In the first quarter of '98, more than 60% of U.S. business PC buyers used the Internet in the brand selection and purchase process.
So if you are in ecommerce, the challenge facing you is to build enough unaided brand awareness so customers (and prospects) have you in mind when they go online to find reviews and look at product configurations.
When you think of the Web, which brand names leap to mind?
Branding is about harnessing the free-association game to your advantage. Building an ecommerce powerhouse may be your company's stated objective. But it won't get far unless it puts e-branding first.
=============================
redherring.com
Internet retailers ponder a world of zero gross margins.
By Alex Gove
The Red Herring magazine
From the February 1999 issue
As we went to press, Internet retail companies' stocks were continuing their climb, thanks in part to a report from Jupiter Communications stating that online sales during the 1998 holiday shopping season would amount to $2.3 billion, more than double 1997's total. The implication is that Internet retailing has finally begun to catch on.
Nevertheless, it's still a mysterious business. Consider Buy.com, which sells computer equipment, software, books, videos, games, CDs, and DVDs at cost; the company views sales of merchandise as a loss leader. Buy.com may have zero gross profit margins, but it hopes to use its high traffic numbers to generate advertising, services, and direct marketing opportunities, which are high-margin revenue streams. The company also makes money on shipping.
Matthew Cowan, a venture partner at Bowman Capital Management, says that profit margins in Internet retailing will eventually dwindle to nothing and that companies will have to make money in other ways. But Toby Lenk, CEO of eToys, says Internet retailers have to to offer rock-bottom prices to succeed.
Who's right? Can Internet retailers make money simply selling goods?
FAST AND CHEAP
Buy.com (formerly Buycomp.com) is on a tear. Within 90 days of its 1997 launch, the site was reportedly generating $100 million in annualized sales. It is now selling more than $1 million's worth of goods per day. With a $40 million investment from Softbank Holdings in November, the privately held company claims a valuation of $400 million, a huge figure for a such a young startup.
How can a company that sells products at cost make any money? According to Michael Parekh of Goldman Sachs, the Internet allows vendors for the first time to make an entire category of commerce (like retail sales) a loss leader. "The most successful Internet companies have been able to blend multiple types of revenue streams -- not just commerce but advertising, service, and subscription," Mr. Parekh says. He cites America Online (AOL) as the quintessential example.
Still, striking a balance between revenue streams can be tricky for CEOs and terrifying for investors, as AOL's historical love-hate relationship with the markets attests. Netmarket, which sells goods at a sharp discount, has tried to make money by adopting a buyer's club model. But so far, its attempts at garnering subscription revenue have been less than stellar.
Where is Internet retail headed? Jupiter's Nicole Vanderbilt maintains that the type of goods will determine the margin and that, given the Web's affluent base, brand is still an important factor. "We're not talking about the average Wal-Mart shopper," she says. "These people aren't going to chase pennies."
Buy.com's CEO, Scott Blum, disagrees. "Pennies?" he scoffs. "Amazon's margins are 19 percent. If you sell at zero margin instead, that's $6 off a $30 book." Even affluent buyers will be attracted to those kinds of savings, he predicts.
THE TOUGH GET SHOPPING
It's easy to assume that margins on the Internet should be negligible because e-commerce appears so simple. But aggregating goods and shipping complete orders is a tough business -- not to mention the complexities of customer service. "Everybody thinks you just throw up a shingle and you're in business," complains eToys' Mr. Lenk. "But I can tell you: this stuff is freaking hard. The investment in people and systems is a huge barrier."
Buy.com's critics say that it is simply buying its business, with no idea how to turn a profit. They question what value it can deliver to advertisers and wonder how loyal its customers will be. Buy.com is off to a fast start, and it could throw the retailing model on its head. But for my money, it won't.
===================
redherring.com
Will Amazon ever be profitable?
By Peter D. Henig
Red Herring Online
January 5, 1999
"It's a great growth field, but where are the earnings?" says Charles Crane, chief market strategist for Key Asset Management.
That question was on a lot of people's minds as Amazon.com (AMZN) announced fourth-quarter sales of $250 million -- more than triple its sales from a year ago -- but at the same time announced that the growth would not reduce anticipated losses for the quarter.
While Amazon's announcement indicates that its full-year 1998 sales could reach as high as $607 million -- up from $66 million in 1997, reflecting nearly 1,000 percent top-line growth -- it also highlights the continuing challenge facing most Internet investors: How long must they wait for profitability?
INVESTORS HANG IN THERE
Amazon's strong revenue numbers come on the heels of online service provider America Online's (AOL) announcement Monday that its subscribers spent $1.2 billion through the AOL network, the online equivalent of a shopping mall, during the holiday season.
Yet even though the evidence is proving what most analysts and investors expected -- that retail purchasing on the Web is nothing short of booming -- a clear distinction is being drawn between who's making money on that boom and who isn't. In one corner, AOL and Yahoo (YHOO) are currently profitable and are leveraging their brand identities and market leadership positions into ever-stronger operating margins. In the other corner, Amazon and the slew of other online retailers behind it aren't even close to making money.
But Amazon's cautionary statements were greeted by -- what else? -- a rally in the company's stock. Share prices were up more than $6 on Tuesday to $124.50 (Amazon split 3 for 1, effective this morning).
"They are continuing to put all of the pieces in place for the longer term strategy to be successful," says Jill Frankle, Internet analyst with International Data Corporation, "which means that stronger sales won't necessarily translate into a stronger bottom line."
Ms. Frankle and other analysts point to Amazon's expansion into the lower profit margin music and video businesses, its engagement in price wars for customer acquisition, and its impending expansion into other product lines and overseas markets as reasons why the company is still swallowing cash. But how long will investors tolerate expansion and branding at the expense of bottom-line results?
HOW LONG MUST I WAIT?
"People should be concerned about the slip in margins," says Ken Cassar, analyst with Jupiter Communications. "But investors will really need to watch over the next couple of quarters which direction margins head. ... They shouldn't go much lower than this."
That seems to be the consensus among Amazon watchers. The market will continue to show amazing tolerance of losses in the short term. But 1999 may be the year when that tolerance grows thin, particularly if a glut of Internet IPOs floods the market, allowing investors to become more choosy in their Internet investment decisions.
"I don't think there will be this level of tolerance in the future if we have significantly more Internet offerings," agrees Ms. Frankle.
In fact, although the announcement today was "more of a message about top line growth," as Ms. Frankle describes it, Amazon's statements continue to highlight the precarious position Internet stocks now find themselves in.
"Declining margins are not a cause for concern right now, but a slip in sales growth would be," says Ms. Frankle.
Mr. Cassar goes further. "One of the problems with Amazon's stock price is that now it has to go into all of the other product lines to justify its valuation," he says. "That's what people expect."
Those product lines might include higher margin businesses such as home electronics and toys -- the latter of which can produce margins up to 35 percent, according to Mr. Cassar. However, the costs of entering those markets and acquiring new Internet shoppers will continue to weigh against any potential revenue gains, at least through the end of 1999, postponing profitability way into 2000 and beyond.
Can Internet investors continue to wait? "That's what people don't necessarily realize about the Internet," says Ms. Frankle. "It's actually an investment for the long term."
|
