~OT~ 'E-tailers put new twist on age-old sales technique'....
<<By Martin Wolk
SEATTLE, Aug 10, 6:31 pm (Reuters) - The Internet may be the wave of the future for commerce, but many -- if not most -- online retailers are counting on a sales technique that dates back more than 200 years.
Direct marketing, the tried-and-true business method responsible for such daily intrusions as junk mail, telemarketing and offers of ''12 CDs for $1!,'' is the magic behind the curtain that Internet bulls hope one day will bring profits to online upstarts like Amazon.com Inc. (Nasdaq:AMZN - news)
Direct marketing has been around at least since the 1700s, when Ben Franklin circulated a list of books for sale. The modern form generally is credited to traveling salesman Aaron Montgomery Ward, who issued his first ''wish book'' mail-order catalog in 1874 and launched a retailing powerhouse.
Today, catalogs account for $93 billion, or 3 percent of the nation's $2.7 trillion in annual retail sales, with the Internet adding another $11 billion and growing rapidly, according to the Direct Marketing Association, an international trade group with 4,500 member companies.
The basic concept is that for a certain up-front investment in mailing lists, postage and printing, marketers gain a predictable number of customers who will pay that back plus a profit in purchases over a certain number of months or years.
In the credit card industry, it might take two or three years for an account to become profitable, while long-distance providers might be able to make a profit after only four months, said Vince Talbert, who has worked in both industries.
''You acquire customers, you try to maintain those customers and you try to expand that relationship,'' explained Talbert, who recently became executive vice president of Talk.com (Nasdaq:TALK - news) , which lures telephone customers with an offer of ''5 cents a minute long distance'' and ''No monthly fees!''
The Internet, of course, has allowed direct marketers to become more irritating than ever by reducing their cost to near zero, resulting in electronic mailboxes full of screaming offers to ''Make $1,000 a week at home!'' not to mention come-ons from ''Busty, bold and beautiful blondes.''
''If I send out a million messages and get five sales, that might be economic for me on the Internet, whereas that would be ludicrous in direct mail,'' said Don Peppers, head of a Stanford, Conn.-based consulting group and co-author of ''The One to One Fieldbook.''
Peppers predicts such ''spamming'' will become less commonplace as more software is developed to block it. At the same time, he sees the Internet giving birth to a new class of companies putting an Information Age twist on what sometimes is called relationship marketing.
''In traditional direct marketing the whole game has been focusing on one product and trying to satisfy as many customers as possible,'' he said.
These new or reinvented businesses -- including retailer Amazon.com, broker Charles Schwab Corp. (NYSE:SCH - news) and computer network equipment maker Cisco Systems Inc. (Nasdaq:CSCO - news) -- ''focus on one customer and sell them as many products as you can over their lifetime,'' he said.
Unlike earlier generations of marketers, these businesses can tap the vast power of computer databases and use artificial intelligence to try to predict consumer behavior and provide ''just-in-time marketing,'' said Dan Fine, president and chief executive officer of fine.com International, a Seattle-based Internet consulting firm.
''It costs six times as much to get a new customer as to retain an existing one,'' he noted.
He was more pessimistic on the prospect of getting rid of spam, saying that, just like the real world, the Internet will remain full of direct marketers who ''just work the numbers'' and have no scruples about the online equivalent of interrupting dinner with a sales call.
''But they won't be nearly as profitable as true relationship marketers,'' he said.
He and others say retailers who do their job right in the next few years will gain lifelong customers, giving a whole new dimension to calculations of the ratio between lifetime customer value and customer acquisition costs.
''Anecdotal evidence would suggest that once you lock up a customer he is very, very loyal to that Web site,'' said Mark Doll of the Boston office of Ernst and Young, who directs the firm's middle-market e-commerce practice. ''That's not true in the brick-and-mortar world, where loyalty rates are not that high.''
''You have to look at this as a subscription model of business,'' Peppers said. ''Small increments in customer loyalty can remit large increments in customer valuation over the life of the customer.''
(NetTrends columnist Dick Satran is on vacation. You can e-mail him at dick.satran@reuters.com)>>
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