June 26, 1998

MARKETING IN THE CYBER AGE (Part 2)

Edited by Dennis Berman

BUSINESS BUILDERS SERIES: MARKETING FOR SUCCESS

Presented by the MIT Enterprise Forum of New York City

In this second installment of MIT Enterprise Forum of New York City's session titled "Marketing for Success," four online marketers tell us how their companies defined themselves at various stages in their growth, what images they sought to build, what markets they targeted, and what techniques they used to implement their marketing strategies. Panelists answered questions about the rigors and competition of online marketing. BW Enterprise is pleased to provide excerpts from the meeting.

Panelists

Frank Palantoni, former general manager, New Ventures Div., Dannon Co. North America.

Rod Parker, senior vice-president for sales and marketing, CDnow (CDnow.com), billed as the world's largest music store.

Lou Weiss, senior vice-president, AirMedia (www.airmedia.com). AirMedia is the first wireless Internet network. It connects offline PCs to the Internet and serves as a push-broadcasting real-time news service.

Jay Friesel, executive vice-president for sales and administration, 24/7 Media (www.247media.com).

Moderator Jason Chervokas, co-editor and co-publisher, @NY, a magazine reporting on New Media in New York's Silicon Alley.

JASON CHERVOKAS, MODERATOR: Let's talk for a minute about brand building and the nature of brand. Everyone up here agrees that the Internet is a great direct-marketing vehicle, which is something different than a brand-building vehicle. That more traditionally involves broader spray kind of appeal. There is a conventional wisdom in the land that TV's a great advertising medium because it affects people's emotions and the Internet doesn't have that kind of effect. You don't talk about the TV commercials. There's not that global village, fuzzy warmth.

And yet, we see with CDnow and other places, that you can build a brand on the Internet fairly quickly and fairly cheaply -- although at a certain point you need to go public to raise money to do conventional marketing. I'd love to get a sense from the panelists: Is this a brand-building medium? Can you build a brand on the Web. How do you do it?

ROD PARKER (CDNOW): I think you have to build brand, and one little metric with how you build a brand is just check your bookmarks out because there's a little sign if you've accomplished something....The old conventionalism is, if you go into a supermarket and Heinz ketchup isn't there, you go out of the supermarket and go to some other market to buy Heinz because that's the ultimate brand loyalty.

Let's throw that stuff out for a second and think: "What's the Internet all about?" Just think of your bookmarks. One of the questions we asked in our research surveys is how many people bookmark us. And in our case we also have an auto-log-on feature, which allows you to store information and do the transaction faster. We have a very high percentage of people who bookmark....So even when we get a customer, we want them to bookmark us and come right back in and use us that way.

This is great direct marketing, but it's great impulse marketing....It has everything -- which is what is fascinating. It's so damn fast that you've got to love Internet marketing. But just think of this: You have millions of people who are exposed to your messages constantly, and they're one click away from your store. The message and the channel of distribution are like almost instantaneous. They can be fused together....You can just bring the store right to you. It's an enormously powerful tool to think about and how you use it. I don't think many of us really have mastered this thing yet....The secret in our mind is the promotional stuff works and so forth, but one of the keys is contextualization. Because we know that if it's the Pearl Jam fan going to the Pearl Jam site and they want to buy, they go to the discography page. You've got a good probability of getting a sale. But what about just the casual user who's surfing the Internet? How do you do that? Well in the music spaces like we did with Lycos, we've actually put a best-seller-chart search engine. We've poured in over to their site. We're trying to go to the other site and bring in content that creates contextualization on their music page, and that's part of those deals.

It brings out all new pieces that are very different. Some of the good old-fashioned metrics of awareness and creating brand awareness, creating attitude and persona and a brand that you kind of feel good about. I don't hear a lot of people saying: "Hey, I saw a great banner" at the cocktail party. On the other hand, people do talk about CDnow and buying things in a new way, and they do get the message. So that is why we believe that if you have the market opportunity, and you can build a brand and get some public money, go for it.

JASON CHERVOKAS: Frank, you had some interesting things to say about brand loyalty and how you keep people. That's a real issue in an environment where you are a consumer. It's one thing to have to drive three hours to buy that bottle of ketchup, but when it's just a click away -- just like that transaction is a click away. So is Music Boulevard. You're raising some interesting issues about how you add the value and that brand loyalty.

FRANK PALANTONI (DANNON): First, to go back to what you said about the context you see it in, it's what's attracting the user to the Internet. I'm not sure what percent is going there specifically to buy a record or use it as a surrogate for a retail environment, but certainly we all have our habits. We all have our habits of checking the weather if you do that through the TV, the Weather Channel, or the Internet. You're still going to do that. I think as the Internet gets more and more application-oriented towards checking the weather, checking the train schedule, airplane schedule, those will be good ports into it.

The next question becomes: How do you create brand loyalty? Well, first you have to convert those people who are there into a shopper or a user of your brand. I think at that point there is a link, and I really like Rod's point about how it's a convergence factor. To illustrate that: If you want to bring someone in through the airlines -- and a lot of people travel -- and they're going to go into the Internet to check their air travel schedule or buy their tickets, there is a way to tie in with frequent-flier points and add value and bring loyalty to their record-selling as an example of retail, outlets, or whatever. It works with credit cards; it could work with that. The second point may be simply to add value by providing a service. Again, if you're going to tie in with foul-weather gear, it would make sense that your links are more oriented towards the weather channel that's on the Internet as opposed to some other kind of link, perhaps financial services. So what are you providing for free -- information or service -- that would allow you to build brand loyalty that differentiates your brand somehow?

The third way to do it is how all the retail stores have done. And again, what we saw in Rod's presentation was to add entertainment value. It used to be when we were young that department stores were pretty sleepy places, and now they're really not department stores. They're record outlets and record stores, record venues. Entertainment has even been added to restaurants. So I think the third way to attract loyalty is to add entertainment value to whatever your brand is.

LOU WEISS (AIRMEDIA): Let me throw something on top of both of those points. Building brand loyalty is very often not convincing someone to try your product. Building brand loyalty is: Someone has tried your product, and you want to convince them and reinforce, hopefully, the positive experience that you gave them. If you ask the car companies how much of their advertising budget is dedicated towards convincing people that the car they already bought from them was a good idea, you'll find that it's actually a lot higher than the money that they think they're spending, convincing people to come buy a car from them. A perfect example in the online world and how you can do it both online and offline to reinforce your online business is Amazon.com. I think they have done an incredible job. I went there to buy a book because I was too lazy to go to the bookstore and I knew the title of the book that I wanted. I went there, and I had a positive experience. I bought the book. It showed up when it was supposed to, and it was reasonably priced, and I enjoyed the book -- which is pretty much beyond Amazon's control but plays into what I think about after I used them once.

Then they start to develop the sophistication of their site that says, "Well, if you like this, you'll love that, because a lot of other people that bought this book bought that one. Then they start to run these commercials -- and I'm sure you've seen them because they are certainly running enough of them -- that I'm a smart, interesting person, I read lots of books, and I buy them at Amazon.com. I looked at those commercials, and that made a lot of sense to me. Because whether that's true or that's not, that's how I see myself. I connected with that, but only in the context of having had a positive experience at Amazon.com.

I would never in a million years watch that commercial and say, "Oh my God, I, too, am a smart and interesting person so I had better buy all my books at Amazon.com." Advertising a lot of time doesn't work that way...The thing that you think you got from them, you're going to continue to get from them ­- that's the most powerful brand building that you could do.

FRANK PALANTONI: There's one more thing to look at in terms of brand building, too. If you ask any of the manufacturers, especially in the automotive industry, it's not just about building a brand -- that I want to go out and buy a Cadillac, I want to go out and buy a Pontiac or a Ford -- it's about delivering the service of a product promotion on a Web site that says Ford can give you this much information. So I click on that banner, and that takes me to the Ford Web site. On that Ford Web site there is a host of information that you can't get anyplace else, certainly not in one place. The only place you can get the information is if you collected the videotape that they sent to you, if you got the direct-mail piece that they sent to you, or if you went to the dealership to talk to them, etc.

So building a brand isn't always building the identity of the specific product. It's building the identity that we can deliver -- meaning Ford, Toyota, Mercedes Benz can deliver a product and information to you and make your life easier. If I make your life easier, and I find a way to identify with you, building an identity with you -- and again this is a marketing technique used in automotive sales -- then you feel more comfortable with my product. You know more about my product, and I'm not ashamed to hide it behind some sleazy salesperson sitting in the back of the dealership. I can go to that Web site, get all that information, and I feel great, so I go out and buy that car. That is part of the process of building brand identity, not for a specific product, but for a specific category or a specific brand name.

JASON CHERVOKAS: Let's talk about habit formation. Are habits being formed? Do consumers online have different habits? In conventional marketing you sort of look at the behavior and market to the behavior. Are there any truths to Internet behavior that you can market to?

ROD PARKER: It's interesting. I'm sure that it's different for each category. I'll just tell you an observation. I've done a whole different bunch of marketing stuff in my career, and this one is really quite different. But one of the things that I've observed in the last year is that the music business (and you have to dissect it so I just will talk about my category only) seems to have different components. One part is the consumer, and the consumer has their interests, and the other part is what's going on in the culture. The holiday season is a great lift for us, like Christmas and the Grammys. And we took advantage of that. The tour time in the summer, music moves into the culture itself. Then you have an artist-specific thing, news for instance. Titanic was gigantic. Our biggest seller last year was the Princess Di thing.

What happens is news. An artist's release, like Clapton's new release, is a very big seller. The artist can actually drive some of the habits, too. Music isn't a rut-driven thing. It's more visceral than logical, and I think it's different than books in that way. Part of the equation is that we get the control. We reach out, we go to them. So we try to do an integrated marketing and put those pieces together. We like to control the equation a little bit. That's, for instance, our Grammy event promotion. We put all the pieces together at one time and created new ruts, new habits. That's important.

When you're moving someone from one channel to another, it doesn't happen overnight. You have to work at it, because channel shifting is not easy. It just happens that this channel is an extraordinarily convenient one, and it ties in with what we said here -- to a fundamental need that people have, which is convenience. But it still is not easy. Changing the habits is a lot of work for markets.

JASON CHERVOKAS: Ultimately the success of your business is getting people who are brick-and-mortar retail buyers that buy online, as opposed to Lou. Your audience is already technologically enabledŠ

LOU WEISS: Let's take a poll. Who would not put their credit card through a Web site to buy something? A couple. O.K., you go out into the general population, and you find quite a number of people who are petrified to death of putting their credit card in. Now, we say as marketers, you're not liable if your credit-card number gets stolen. No. 2, we say, "But gee, you'll give it to someone you've never met in the store. What's the difference? They can steal it just as easily." It matters, again, what the consumer thinks. What's the habit? The habit is you don't give your credit card out to strangers. If this person works for the store, was hired, and is managed by the store, the store cares that your credit-card number doesn't get stolen. Somebody is watching out.

There's visions of 13,000 kids waiting to scoop up tens of thousands of credit-cards number and go buy everything in sight, and you're going to end up with a $16 million credit-card bill. The challenge in overcoming these habits goes back to his point about how incremental it is...

JASON CHERVOKAS: Jay, you're sort of in the business of tracking new habits. There are organic ways people are using this medium. They are inventing habits of their own. How are you tracking it, and what can you tell people that are using you as a service to market?

JAY FRIESEL (24/7 MEDIA): Think about what goes on in America Online. Every time an ad is served on AOL, there's a purpose behind it. They know your telephone number, address, your name, they know what credit cards you use, and they know all these habits and patterns that they're building up about you. But -- to take it one level down, so you don't get so nervous you'll never turn on your computer again -- the plain fact is that (as Lou said) every time you use your American Express card and you give it to a stranger and you swipe or they swipe that card through that American Express machine, they know what time you ate, where, what you ate, how many people were in your party, what table you sat at, and how long you were there and who your waiter was. The scary part is that I was having lunch the other day, and somebody came to our table, and the waiter said, "Mr. Friesel, it's great to have you back here." Would you like to have the same thing you ordered last week? I got really nervous when he said that. The patterns are there so we do track them, and we can tell, literally, what you do.

JASON CHERVOKAS: Are there patterns that are new and different in the way that people are using it?

JAY FRIESEL: I think that it's an ever-changing medium. I don't think that there's a pattern.

JASON CHERVOKAS: So there's not a pattern?

JAY FRIESEL: No, I'll tell you what the pattern was. Two years ago the Web was 70% male. Today it's probably 50-50. There are as many older people 50-plus on the Web today as there are people between the ages of 25 and 44. Kids are avid users of the Internet so those trends go. The average person spends three-plus hours a week on the Internet. Those patterns change. I'll give you a behavioral change that I think is unbelievable....The Super Bowl...Three years ago, there was no Super Bowl site, nobody ever went to a Super Bowl site and clicked on a designated dot com. Today, there are tens of millions of people who do that. What they're going there for, I'm not sure. They want more statistics than they can possibly get from Bob Costas and anything else that's out there. But they are at that site. Traditional media to a great degree is driving them there.

JASON CHERVOKAS: That's an interesting point, and hopefully we'll find that in questioning. Online vs. offline media and how important they are to one another when you're marketing product. So let's throw it open. Who's got some ideas and wants to kick them around?

Q&A PERIOD:

Q: There are a lot of things you can do to perfect your online marketing. Register with all the search engines, actively encouraging incoming links, sending press releases on the Web. Do you think you have enough resources to do that effectively, and what are your thoughts about the importance of doing all of that?

ROD PARKER: You never have enough resources to do all the things that are on your plate. I think that's a good example of how many things are on the to-do list. Most people in the world probably don't even realize all the nits and bits of making it work that way. We started and did some of the first linking online, so there's some things that we do better than other things because we've been there longer and have a bit of a heritage for it. We're about 130 people now. Our business did $10 million in the first quarter and it just is a whole lot of work to do it. I would say that we are getting better every time, but we don't partition everything as well as we need to.

Q: CDnow was not the only retailer associated with the Grammys. Was it better to be a competitor or to be the official retailer or to spend money on the TV spots.

ROD PARKER: Well, we did the whole thing. We had a major promotion on Yahoo!. We started in February with promotions on our site, and we had original content about the history of the Grammys, and we had a sale for all the nominees starting in February. I had a Grammy task force working for four months on this. To your point on labor intensity, that was a multidiscipline matrix management task force that met every Monday night for four hours. That's what it takes to do this.

It built up to the Grammys. We had an exclusive sponsorship for the national telecast. Other people bought spots, but no one had the exclusive sponsorship for the telecast, and we had three spots and the billboard in it. We had 50% off on the winners. Very unusual, because we wanted to move people from one to the other. No one did anything like us on this. We had our Web site live and changing on the fly. When someone won, our Web site had winner 50% off on our homepage before they actually got to the podium and did their acceptance speech. You have to think this way, and that's important.

Q: Was there a lot of traffic during the telecast?

ROD PARKER: It was after the telecast. And think what I'm telling you about music. Once someone has won, that starts the "Oh yeah, I want that." When they were nominated, oh, that's interesting. But when they win that starts to work, and the brain is starting to trigger over the event. We sat there and said, "All you have to do is turn on your computer, which isn't like all that difficult, and you get 50% off." We drove a tremendous spike. We served 1.5 million pages, and 60% of the customers were new. Then we followed up with the radio and a lot of Web-site stuff. So we followed through because then people said, "Yeah, I do want to buy a winner." We had a five-day sale on the winners, and it was extraordinarily successful. But it was pioneering at the time, and I tend to do things over again that work.

JASON CHERVOKAS: One thing to throw on top of that is remember what he said in the beginning of the day. N2K is not his biggest problem or his biggest opportunity out there: It's Tower, it's HMV. Again, it's the better way of doing something vs. the old established way where all the business is now. It's much more interesting for most of the new-media-type companies to make the new-media pie bigger. We'll fight over it all later, once it's worth fighting over. Yes, we're fighting for share. But at the end of the day, and if this were a set universe and they could trade customers back and forth with N2K, it wouldn't ultimately be as interesting a business as it is to try and drag them away from the Towers and the HMVs.

Q: Business-to-business marketing. Anybody doing it, tracking it? Thoughts about it? You guys are doing it pretty heavily.

LOU WEISS: We decided in the beginning that AirMedia was a brand that was going to stand for: We're good at delivering wireless information. That's what we were going to imbue that to mean. That's what we say in our advertising, and that's what's in the press release, bio, and articles that we write, the interviews that we give. That's what we try to communicate to the world.

What that allowed us to do is shift from a consumer-oriented model, where we're out there trying to acquire customers one at a time, to a business that we're in now, where we are more providing services to wireless carriers, to the cell-phone companies and to the paging companies, who want to go market to consumers. The good news is that the two years and the tens of millions of dollars that we spent telling our story about how good we are delivering wireless information, was not only not wasted but was very valuable as we made the shift from banner ads...trying to market to consumers to byline articles that we write in online publications that are marketed to very technical people that make cell phones work.

Again, if you make sure that you define your brand broadly enough and narrowly enough, then you're in a position to make those kinds of shifts. A lot of companies do B-to-B and consumer marketing....you're able to do both. [Say] a competitor to CDnow said, "We're going to spend our money and our life telling people that you should buy music from us because we know music. We have staff musicologists. We all came from Berkeley." [They] spend two years and tons of money telling that message and say, "Oh my God, we have a great store here and great technology, we should sell books, too." It's not totally unreasonable to assume you might do that. But if you spend you're whole life telling people that music is all you know, then it's harder to do that. But, of course, the more narrowly you tell the message, the easier it is to get your first customers.

JASON CHERVOKAS: But does the Internet have a sticky and tricky habit of turning everything into a commodity?

ROD PARKER: I can tell you how we view it as applicable to music. Go back to this idea of what a better music store was: to provide information as well as a breadth of selection and so forth. Spot on is the comment about value. It isn't just price, because here what we're delivering is music that otherwise you couldn't find at a retail store and the information to understand what you're buying and the sound sample to actually try it before you buy it.

But to create more value -- as an example, we just did a deal with Rolling Stone, the network and the magazine, to acquire exclusively all of their historical content, so we now have 30 years of rock-and-roll history. We need to do a lot of work to incorporate that into our database, but that creates some excitement and value because only we have it, and Amazon will never have it. We understand that we have competition online, and we have to build our brand that way as well as vs. retail. So it's a complicated equation. We price aggressively against retail. And what they sell, we sell very aggressively. And what they don't sell, they don't have, we just price mildly and advantageously. We offer more content than they do, and we try to have better content than our competitors online. They're all pieces to the value, but it's a bundle of information and services together at a favorable price.

LOU WEISS: People are going to always be interested in price. Hopefully it's about the value. How many people know who the cheapest dry cleaner in Manhattan is? That would be none. How many people know who the cheapest dry cleaner within two blocks of their apartment is? And that would be a whole bunch. It's not always just about the price. In fact, rarely is it ever just about the price. There are very few things in the world that are just about price.

JASON CHERVOKAS: Yeah, but isn't that different on the Internet? I mean, you are within two blocks of everything on the Internet.

LOU WEISS: O.K., so we'll say that the convenience in real estate gets taken out of it. How do we build affinity groups? If I'm going to shop at CDnow vs. N2K, what am I getting out of it? Am I getting good recommendations? Do I eventually buy at a frequent level that I start getting frequent-flier miles or the shipping becomes free or this or that, or the other thing. There's no shortage of ways. Frank used to market water. Water is 40 cents for a thousand gallons out of my tap, and we all go to store to buy water for $1.00 for 12 oz. If you can uncommoditize how hydrogen and oxygen get together in a 2-to-1 ratio, then you can uncommoditize anything there is in the world. And I have a favorite brand of water.

FRANK PALANTONI: And I think just on that example to make one more point. Bloomingdale's and Macy's -- you can buy the same sweater in every store. You are probably going to like one of those stores, and I think likability is something we haven't talked about here, and I think that's another way to uncommoditize something. People will usually have an affinity for something, and that's probably the strongest bond that people will ever make.

JAY FRIESEL: You know to add to that environment on the Internet is very important. You can have two sites that do the same thing and look totally different. Sites that provide you with information, provide you with a suite of little portals to go to, to get what you need. You will come back to that site. Like you said, you bookmark it because you feel comfortable with that site. Yet you might go to the other site and be able to do the same thing and maybe save 10 cents, a dollar, or $10, but you'll come back to that site. I think environment is created that way, and that's something that's done on the retail level, and things that are done on brand level, because you feel comfortable with the product. You can brand identities, not just products. You can brand identities.

We said this before, and you mentioned talking about branding, but think about four years ago. No one ever heard of Yahoo!. Today Yahoo! is a $6 billion company that probably has no earnings but a $4 billion cash flow. Virtual cash flow. Yet it's the No. 1 product on the Internet, and everyone wants to be associated with it, including Rod and everybody else. So branding is developmental, and it's an environment. They created that idea, and that's a very important part of it. Environment is going to continue to be an important part of it.

Dennis Berman is a staff reporter at Business Week Online.