April 30, 2002, 12:00 AM

Direct marketing on steroids

The Internet is driving new customers amd sales at e-retailing sites--and doing it with the speed and ability to shift gears in mid-campaign that only the web can provide.

Take the overblown dot-com TV ad blitz of a few years ago, follow it up with a much-trumpeted decline in banner ad effectiveness, and it’s no wonder that for a time, e-retailers were scratching their heads over where to plunk down their advertising dollars. The cost of major offline media could gobble up millions of dollars without moving the needle on sales, while click-through rates on most online advertising showed such ads barely registering with consumers.

Now a surprising answer to where to spend that budget is emerging: online.

When selling on the web was taking off in 1998 and 1999, many believed that the best way to market was online. But because the web was a new medium with a limited number of users, such marketing failed to drive sales. And so many took to offline marketing in what became the well documented burning of cash on Super Bowl and other network TV ads. Many retailers who went that route are no longer in business. And their experience spooked enough other retailers that they’ve been spending marketing money cautiously since then-and demanding results.

But today, many are finding that what marketers thought was true a few years ago, finally is true today: A great way to drive sales to e-retailing sites and obtain new customers is through online marketing. Cataloger and web merchant Coldwater Creek, for instance, reports that a third of buyers coming through its extensive affiliate marketing program are new to Coldwater Creek. The affiliate program is so successful the company says it no longer relies on catalogs to drive web sales.

And Boston-based SmartBargains.com, an outgrowth of Gordon Brothers LLC, one of the largest and oldest retail liquidation companies in the country, attributes its tenfold growth in site visitors in just three months in large measure to affiliate marketing. “Our affiliate marketing program has provided the company with a substantial foundation of traffic and sales,” says President and CEO Carl Rosendorf. “In July 2001, one month before we launched the program, we had 400,000 unique visitors to our site. By October, we had 4 million visitors.”

Getting the URL out

Smart Bargains has a steady supply of high-end, brand-name merchandise at up to 80% off. At prices like that, the goods sell themselves; the only challenge is getting the retailer’s name and URL in front of the right online consumers. 18-month-old Smart Bargains, a pure-play, has no catalog or brick-and-mortar presence and does no offline marketing or advertising. Yet Rosendorf says the company expects to reach profitability in this, its second, year of operation, on a marketing budget that is 100% devoted to online efforts.

A number of factors have come together to make online marketing effective. Among them: the rise of a broader base of users who are becoming ever more sophisticated, a deeper understanding of how marketing works on the web and the measurability of results so marketing dollars can be targeted. And all of that has been distilled into the concept of pay-for-performance marketing.

“Our growth happened because of affiliate marketing and an aggressive e-mail program,” Rosendorf says. SmartBargains has contracted with Be Free Inc. to build and manage an online marketing program. “We use their tracking and reporting to help us determine the best sites, the best placements within the sites and what creative works best to maximize conversions for our affiliate partners and ourselves,” Rosendorf says.

Unlike blast-it-out brand advertising, pay-for-performance affiliate marketing, in which a retailer posts a promotion and a link from an affiliate partner’s site to the retailing site then pays the affiliate a commission on every sale or other designated action the link produces, leverages the Internet’s interactive capacities. It lets online sellers cast a wide net without overspending, paying to acquire new customers only when the customers click through a link to buy. It can bypass consumers unlikely to buy a retailer’s products to zero in on better prospects. And while affiliate marketing has been around for some time, it’s getting a new look from new customers and a bigger slice of the pie from old ones, sometimes at the expense of pricier tactics such as e-mail list rentals and fixed-cost portal deals.

“With many of our newer customers over the past 12 months, we’ve gotten a larger percentage of their marketing budget than we did two years ago, when they were spending money all over the place,” says Gordon Hoffstein, CEO of Be Free.

It’s all just marketing

Also fueling the gain in popularity is the fact that affiliate marketing companies are expanding to offer more services as merchants look to squeeze more accountability out of other online campaigns. Thus Be Free and other affiliate marketing providers within the past year have moved beyond simply tracking traffic and sales from linked sites into new areas such as the management and measurement of e-mail campaigns and search keywords. “I used to see companies that had specialists in e-mail, in affiliate marketing and in search,” says Stephen Messer, CEO of affiliate network LinkShare Corp. “Now, it’s all just marketing.”

The expanded services available at traditional affiliate services providers are a move to keep up with a fast-changing marketplace as retailers get more comfortable-and more aggressive-online. “XYZ Shoe Company does not tell us it wants an affiliate network, it says it wants customers,” Hoffstein says. “We tell them an affiliate network can do that, so can search optimization, so can e-mail marketing. If you end up getting customers for the merchant, they really don’t care what tools you are using.”

So to win a larger share of retailers’ marketing budgets, affiliate marketers are adding those tools and the ability to track their performance to their arsenals. Be Free’s retail clients can now use the company’s technology to track their e-mail campaign and portal deal results, which allows head-to-head comparisons on a common platform of how an e-mail campaign performs against a portal placement, for example.

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