December 26, 2000, 9:55 AM

A lot of fish are swimming by the lure; it`s up to merchants to get them to bite

The Internet is about change. And nothing has changed more in the last 12 to 18 months than the competitive online environment. Online merchants must adopt new methods to keep visitors coming back and-even more importantly-making repeat purchases. When the Internet was new, consumers flocked to the Web just to see what was available. Now there are thousands of online merchants all trying to capture the consumer’s attention and dollars.

Today online merchants use technology to build visually dynamic sites with great merchandise. They provide visitors with an easy-to-use site layout and make the online shopping experience as hassle-free as possible. At the same time, however, only a small number of Internet retailers are taking advantage of the relationship-building tools and techniques available to keep those customers coming back. Great looking Web sites with great merchandise are no longer enough.

Years ago airline companies discovered that frequent flyer programs were an effective way to build customer loyalty. Today their methods include a combination of convenient flight schedules, advance-purchase discounts, as well as frequent flyer programs that reward their best customers. And, over the last few years, airlines have increased the value of their frequent flyer programs by adding credit cards that accrue even more miles from customer purchases. The result is tremendous loyalty to airline programs by both frequent and not-so-frequent flyers.

Supermarkets also use a variety of strategies to build customer loyalty. The most successful combine convenient locations and reduced prices on a group of products that change weekly with frequent shopper programs that reward regular customers for purchasing specific products and certain dollar amounts.

Incentive programs work. According to a 1998 survey by Total Research Corp., six out of 10 consumers said they spend more money with companies offering loyalty programs than they did before the program started. Overall, consumers estimated spending 27% more with those companies.

The most effective strategies to keep customers coming back are built around this concept: If you provide a strong enough incentive and reward certain actions of consumers, they will become loyal customers and buy more.

Dumb and dumber

Over the years, retailers-from catalogs to bricks-and-mortar stores-have learned that a “lowest price” strategy by itself is not enough to compel customers to buy. When one retailer tries to position itself as the “low price” leader, competitors respond with even lower prices. The result is a price war that no one wins.

When Amazon.com recently announced it would begin selling New York Times bestsellers at 50% off, it was easy to predict what its competitor Bn.com (and other online booksellers) would do. Bn.com matched Amazon.com’s offer. So, with the two biggest online booksellers both pricing merchandise at 50% off, the price-slashing promotion is no longer a competitive advantage for either company.

Claiming to have the absolute lowest prices is a dangerous strategy for online merchants for a couple of reasons. For starters, with just a few clicks, a consumer can compare your prices to your competitors. And competitors can respond quickly to your pricing by reducing their prices even more. The current strategy of several online companies to give computers away for free in return for signing up for their services is a great example of smart companies doing dumb things. Excessive discounting and front-end loaded giveaways create a no-win situation.

If you are not already doing so, you will find real benefits to building customer relationships with an incentive-and-rewards program. Incentives can be as simple as an instant discount when the customer reaches a certain dollar amount or buys certain merchandise. With the current state of technology, online merchants can structure, track, update and customize instant incentives for each individual customer or groups of customers.

With the ability to track every visitor’s actions and purchasing patterns, Internet retailers can also create point-based frequent buyer programs that provide the customer with discounts, rebates or other rewards for purchases. But keep in mind, the incentive or reward must be compelling enough to bring the customer back to your site.

One more time

A good example is an incentive used by DVDexpress.com. After an initial minimum purchase, this online seller of DVD media sends an e-mail to new customers with a certificate for $10 off the customer’s next purchase-a guaranteed way to get the customer back to the company’s site at least one more time. It also sends a $10 certificate to the person who referred the new customer to DVD Express.

Other online incentives include downloadable coupons, instant discounts and free shipping. But over the long term, the most effective programs are those that offer a variety of incentives, rewards and recognition. For example, there are no costs for an airline to allow its best customers to board a flight first, but it certainly makes the customer feel special.

As incentive and rewards have soared in popularity, the number of companies developing and managing these programs has grown. Among the largest and best-known companies are Carlson Marketing Group (mindadvertising.com), Brierley & Partners (brierley.com) and Frequency Marketing Inc. Frequency marketing also publishes Colloquy (colloquy.org), a leading loyalty marketing newsletter.

In the past, the most effective incentives and rewards have been branded programs created specifically for companies such as American Airlines, Hilton Hotels and Avis. That may change as Internet retailers adopt new strategies and begin to attract customers by sharing rewards with each other.

In addition to third-party incentive and rewards program suppliers, there are companies offering participation in collective programs. Among these is MyPoints.com. The MyPoints program provides online buyers with rewards from a diverse group of companies that includes Target Stores, Blockbuster, Carnival Cruise Lines, The Olive Garden, Red Lobster Restaurants, Sharper Image and Eddie Bauer. Another of these incentive program vendors is e-centives.com with participating companies that includes Tower Records, CDNow, and eToys.

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