BUSINESSWEEK ONLINE: DECEMBER 4, 2000 ISSUE

Frontier -- Trends EDITED BY
KIMBERLY WEISUL

The Net Before Christmas

With the holidays upon us, it's no surprise that e-mail boxes are filling up with Web-based marketing drives. But here's something unexpected: Most of those campaigns are being waged by small companies, rather than by the marketing machines of Corporate America.

Out of all small businesses with Web sites, 82% will use e-mail, text links, banner ads, and other online tactics to get the message out this Christmas, according to a poll by Responsys.com, an e-mail services provider in Palo Alto, Calif., and by IntelliQuest, a research outfit in Austin, Tex. (chart). That compares with just 73% of midsize companies and 72% of big ones. It's quite a switch from last year, when only 54% of small businesses used the Internet for any form of holiday marketing. The better campaigns get response rates of 5% or more.

With limited marketing budgets, ''small companies are more willing to experiment,'' says David Halprin, an analyst at eMarketer Inc., a New York research firm. But rather than assaulting strangers with spam, savvy entrepreneurs are using the Web to keep existing customers coming back. Courtney Pulitzer Creations, a New York event-planning company with eight employees, uses e-mail to publicize a nationwide series of executive networking get-togethers. Courtney Pulitzer says that 1,000 e-mail messages can generate as many as 750 responses.

Then there's the price tag. eMarketer estimates that direct mail costs 75 cents to and $2 per piece. An opt-in e-mail--that is, a message sent only to those who have specifically allowed their name to be sold--runs about 20 cents per name. That helped convince Evelyn Somers, head of marketing at Smarterkids.com, a Needham (Mass.) educational-products retailer with just over 100 employees. Last December, Smarterkids advertised on the Internet, on the radio, on TV, and in print. In the process, Somers discovered that the online campaigns were easier to target and track. So this year, 95% of the company's marketing is being done on the Web, compared with 40% last year. ''It's all about getting and keeping good customers,'' Somers says.

As e-mail volume grows, it's getting tougher to grab consumers' attention. But the low price makes it worth a try. Somers says the cost of her online marketing drives have dropped by a factor of ten over the past year alone. That's a holiday bargain few entrepreneurs can resist.



CHART: Santa's Little Helpers




ONLINE EXTRA: Naughty or Nice: Christmas Promotions via E-Mail

A wave of small businesses will use the Web to get out the marketing message this holiday season, and e-mail seems to be the medium of choice. Forty-five percent of small businesses say they will be using e-mail marketing this year, vs. the 39% that did so last year, according to a survey commissioned by e-mail vendor Responsys.com in Palo Alto, Calif. For medium and large businesses, 33% will be using e-mail marketing this year, compared to 17% last year.

Why is the medium becoming so popular? First, there is the immense advantage of speed. An e-mail promotion can go from idea to completed mailing in less than an hour, compared to at least a few weeks for traditional direct mail, marketing mavens say. E-mail is also cheaper: Even an "expensive" e-mailing costs about 30 cents per name -- vs. $1 to $2 for each piece of direct mail. And with response rates upwards of 5%, a well-designed e-mail campaign can be more effective than direct mail.

But how do you make sure your e-mail campaign delivers? These tips will get you started on the right track.

* First, measure the effectiveness of your current marketing efforts. How much is it costing you to acquire a new customer? How much do you spend to generate a new order from an existing customer? Once you've got a handle on those numbers, you'll be able to tell if your e-mail campaign stacks up favorably.

* Don't spam. Only send e-mail to customers who have given you specific permission to do so. If customers are signing up on your Web site to receive e-mail, make sure your privacy policy is clearly posted. Make it simple for customers to get off your mailing list or to reduce the volume of mail they receive. And if you're collecting personal preferences, give customers the ability to change them. If a customer signed up to get information about their home town of Chicago, for example, let them designate a new city if they move.

* Test carefully. Before you launch a personalized e-mail campaign, send out a general mailing and track the response. Did the pitch resonate with one group as opposed to another? For example, did women respond in greater numbers than men? That information will allow you make the most of your mailing list by more effectively targeting customers.

* You can manage a pretty big e-mail list by yourself using off-the-shelf e-mail software, such as Microsoft Explorer and Netscape Communicator. But once your list exceeds 2,500 names, you'll probably want some help. Companies like Advaya, Digital Impact, and Responsys.com offer e-mail management services targeted at small businesses.

By Kimberly Weisul



Budget Buster

Asked what would happen if they received an unexpected $10,000 bill, 49% of entrepreneurs said it would be a ''very big'' or ''fairly big'' problem, says The Willard & Shullman Group, a Greenwich (Conn.) researcher. Some said it would sink their company altogether. ''Very few small businesses do any kind of budgeting,'' says Fred Waedt, a finance expert at University of Wisconsin at Eau Claire. That's especially true of service firms, he says, which often start with little outside investment and operate for years without a proper budget.

$10,000 BILL WOULD BE A ''VERY BIG'' OR ''FAIRLY BIG'' PROBLEM

CHARTS BY ERIC HOFFMANN/BW



CHART: The $10,000 Question




Companies Stash Cash

Despite a recent series of interest-rate hikes, CEOs of fast-growth companies are taking out more new bank loans as a hedge against an anticipated drop in demand.

Companies that make tangible products are especially worried. In that sector, 29% of CEOs told PricewaterhouseCoopers they had completed new bank loans in the third quarter, compared with 21% last quarter. Only 23% of service-sector companies took out new bank loans in the quarter, up slightly from 22% last quarter. In either case, the new loans are hardly what you'd call a bargain: Companies reported paying an average of 9.88%, up from 8.49% a year ago. For many product companies, slowing demand already is a fact of life: 36% of product companies said they were holding finished inventory at the end of last quarter, up from 23% in the second quarter.



Startups in Brazil

Looking for the next entrepreneurial hot spot? Head to Brazil. The South American nation has the highest rate of startup activity in the world, according to the Kauffman Center for Entrepreneurial Leadership's 2000 Global Entrepreneurship Monitor. One in eight Brazilian adults is attempting to start a new business, the survey found. That compares with one in ten in the U.S. and one in twelve in Australia. Brazil also was the most hospitable to women entrepreneurs, with women starting one new firm for every 1.6 started by a man.

Why Brazil? Good question, says Kauffman Center researcher Michael Camp. Brazil's economy has been growing since the government abandoned longstanding price and currency controls. But this is the first year researchers have looked at Brazil, and Camp says the country's strong showing may be a statistical anomaly.





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Cover for Dec. 4, 2000 issue of frontier
Contents for Dec. 4, 2000 issue


STORIES:
The Net Before Christmas

CHART: Santa's Little Helpers

ONLINE EXTRA: Naughty or Nice: Christmas Promotions via E-Mail

Budget Buster

CHART: The $10,000 Question

Companies Stash Cash

Startups in Brazil

INTERACT
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