NET PROFITS PILING UP
Byline: Valerie Seckler
NEW YORK — Not every band of e-merchants is struggling to weave a profit on the Web.
More than two-thirds of direct marketers — including catalogers, TV shopping channels and membership clubs — currently conducting e-commerce are making money online, according to fresh research conducted by Wharton Econometrics Forecasting for the Direct Marketing Association.
That marks a significant hop over 1999, when only 49 percent of direct marketers made money on Internet orders.
“The bar got a little lower this year for their Internet spending needs,” observed H. Robert Wientzen, president and chief executive officer of the DMA.
“Many of them didn’t have to spend a whole lot more on e-commerce infrastructure, unlike the pure dot-coms, or the click-and-mortar newbies,” he continued, in referring to traditional retailers who are just launching Web sites this year. “Direct marketers have generally had a profitable operation, providing products at a distance from consumers, before they start selling online.
“With the Net,” Wientzen added, “it is actually less expensive to handle an individual order. The customer does more of the purchase transaction work on the Web, compared with the phone representatives, and mail personnel who perform many of those tasks for catalogs and other direct marketing companies.”
The Wharton Econometrics Forecasting Association determined that 69 percent of direct marketers conducting sales transactions on their Web sites turn a profit from those purchases. With 42 percent of DMA’s member companies now accepting orders online, that means 29 percent of its membership, or 1,334 firms, are among the elite group of e-merchants making money. So far, most of the profits realized on the Net have come from two sectors: auction sites and pornography sites.
“Companies are increasingly using the Web to improve the bottom line of their businesses,” Wientzen stated. “Direct marketers are among the first companies to actually make money on the Internet since they already have made [some of] the infrastructure investments needed to fulfill orders efficiently, and they are experienced in customer service and database marketing.”
Of course, many direct marketers, like brick-and-mortar retailers, get an extra boost from an established brand and an existing channel in which to convey that image; the Net increasingly allows them to leverage a label’s equity, as more people make purchases online.
“There is significant interplay between [marketers’] operations in different channels,” Wientzen pointed out. “Web sites have been found to spark business in other media: We’re seeing companies deliberately create other media, from marketing catalogs to postcards, to drive people to Web sites.” For example, he said, Boo.com published a look book of spring-summer styles; Pet.com has created a “magalog,” and Iparty.com has initiated a postcard campaign.
WEFA’s research, completed in March, is based on a survey of DMA’s 4,600 member companies, in 54 countries, and another 2,000 executives who are members of The Association for Interactive Media, or subscribers to iMarketing News.
The survey of direct marketers further revealed:
96 percent have launched Web sites, up from 90 percent in 1999.
85 percent promote online to drive traffic to their sites, like positioning on search engines, with 65 percent doing so, and sending e-mail to customers and visitors, with 53 percent using that tactic.
82 percent use their Net destinations for marketing; 55 percent for e-commerce; 43 percent for advertising, and 39 percent for customer service.
50 percent handle both domestic and international sales transactions, with 93 percent of those companies accepting orders from outside the U.S. and Canada.
Don’t expect direct marketers to take a breather from the cyber-fray anytime soon.
Wientzen, for one, expects them to step up Net marketing strategies in the second half of 2000. “We’ll see more of a blurring of the online and offline worlds,” he projected, when asked of the most significant development he expects to emerge, for direct marketers, on the Internet this year.
“There will be more efforts to bring more offline data and marketing tools into play on the Web,” he predicted. “Part of this is that the Web has gotten so big, it’s been getting harder for people to sort through, and harder for companies to get those people to their site, as a result. Lands’ End, L.L. Bean and J.C. Penney are figuring out how to target people, and get them to their Web site.”
The DMA is estimating direct marketers this year will realize sales of $18.7 billion online, up 70 percent from sales of $11 billion in 1999. And the group expects direct marketers’ cyber-sales to run up more than fourfold by 2004, totaling $84.4 billion.
Overall, WEFA sees direct marketing sales — including Internet transactions — topping $1.5 trillion, this year.
“At-distance buying trends continue to rise,” Wientzen concluded, “whether online, or by catalog.”