Data-Free Zones

YOU’VE HEARD THIS before. The promise of the Internet for marketers is that eventually they will be able to target customers individually. One-to-one. Eventually.

But at least three solid years into the Brave New Web, surprisingly few e-marketers are doing this. Sure, they’re delivering e-mail. Sure, they’re pitching products.

Yet relatively few are doing these things using the technique that direct marketers know best: segmenting. It appears they’re even collecting the data needed for targeting. But with some exceptions, they’re just not doing anything with it.

The question is: Why not?

A few things are clear. Targeting on the Web is used more for prospecting than for customer relations. Also, the reasons many e-commerce sites are not targeting their customers turn out to be the usual suspects: It can be expensive, the technology isn’t up to snuff, and there’s the privacy bugaboo: Direct marketers are even more skittish about offending consumers’ privacy in cyberspace than they are in their mailboxes (the ones outside their houses, not on their computers screens).

Setting up an e-commerce system that’s integrated with your business can cost as much as $2 million. Some companies don’t want to make that commitment-or can’t. “There’s such a frenzy about online commerce that there’s still a perception that you can build a Web site and they will come-you can make a million dollars overnight and you don’t have to manage the store,” says Donna M. Iucolano, vice president of interactive services for 1-800-Flowers, Westbury, NY, one of the most experienced e-commerce businesses in terms of targeting customers. “We’ve found that while the development and engineering is lengthy and frustrating, that’s the easy part. The hard part is managing the business, doing the merchandising and the marketing.”

Then there’s the difficulty of the technology adoption, especially for companies that are real-world retailers.

“I think the newness of the Web, especially for companies with a bricks-and-mortar approach, is a factor,” says Tom Burke, director of marketing communications at Net.Genesis, a Cambridge, MA-based company that makes e-commerce software. “Many of these companies don’t make a big commitment. The earliest industry businesses like eTrade or EarthWeb have to know their numbers. The Web is their business, they have no other way of gauging their success.”

E-mail is popular, but Tracy Emerick, president of Taurus Direct Marketing, Hampton, NH, points out that many older databases don’t even have a field for an e-mail address. Many data centers don’t have the resources to do the segmenting, so they resort to mass e-mail. “The reason most companies don’t do it is they don’t have the capabilities,” Emerick says.

Emerick also points out that many companies, especially in the business-to-business arena, have different databases for different activities-customer service, marketing, accounting-which makes data mining more difficult. A company may not know all it knows about a customer because the information is scattered.

James Whitcomb, CEO of Newwatch Co. (www.newwatch.com), Houston, which offers 5,000 watches, says his site tracks what brands people click on for merchandising purposes but is not doing any segmenting at this time. The site doesn’t collect information except when people buy. “In the future we can customize the site based on where they go, but not yet,” Whitcomb says.

“Most sites are still struggling with the capability of just registering the user,” says Frank Gillett, an analyst with Forrester Research, Cambridge, MA. “Most sites don’t have the demographic information, only the behavioral. There’s a lot more data available than the ability to use it. A lot of this data is falling on the floor. It’s very early in deciding which data to collect, which to keep and how to use it.”

Then there’s privacy. Studies show that consumers are more concerned with their privacy on the Web than offline, and direct marketers have become sensitive to that.

“Because of privacy concerns, virtually none of the companies we’re working with are using database information on the Web,” says Lawrence P. Weissman, president of Paradigm Interactive, Atlanta. Weissman says it’s more common for sites to rent e-mail lists for prospecting purposes, or otherwise e-mailing to their entire customer file. He adds that the most they do in terms of segmenting is distinguishing between those prospects that have responded to a call to action and those that haven’t.

On Target And yet there are companies that are targeting their customers successfully. American Airlines’ travelers who register at the company’s site (www.aa.com) find on their home page offers to destinations they’ve expressed interest in. Iucolano of 1-800-Flowers says her company has many programs for targeting email, banners and product offerings. And CDNow, an Internet-only business has always done it.

But even these companies aren’t segmenting along standard demographic lines. Flowers-which has telemarketing, store and online businesses-does a lot of targeting by sales channel. The company mines its database (which integrates these channels) to find customers who haven’t bought online to get them to try it. “We always try to get phone and store customers to try us online,” Iucolano says. When people buy through the more traditional methods they are asked for their e-mail addresses for order confirmation and (with the customer’s permission-one quarter of them give the okay) for marketing purposes.

Flowers’ e-mails contain links to its site (www.1800flowers.com). Iucolano says that click-through rates on the direct e-mail marketing programs range from 2% to 7%, and the conversion rates go from 8% to 30%, with 18% the average.

Another important segment for Flowers is recency and frequency. It can target annually those who buy for certain holidays, but also tracks first-time buyers and multibuyers. It rewards its best customers with special offers, sneak previews, and first dibs on limited-quantity products.

CDNow, Fort Washington, PA, segments strictly by music genre. Customers tell the company what kinds of music they like and the site also uses Net Perceptions’ recommendation engine to make suggestions. CDNow (www.cdnow.com) has a bimonthly newsletter called “The Update” that has teasers to articles and reviews (with links to the full article on the site) and recommendations. Fans of different music get different newsletters-classical music buffs won’t get the same information as headbangers.

“We don’t ask people to give us demographic information,” says Samantha Liss, director of brand marketing. “We really only have preferences and purchase behavior. Music is what we do. The demographics don’t tell you what type of music people like or what they’re likely to buy. We don’t sell our data. We don’t want customers to think we’re gathering information for the fun of it.”

Undoubtedly, online marketers will become increasingly sophisticated with their targeting; it doesn’t make sense for a drug store site to pitch arthritis medicine to a teenager or acne medicine to a senior.

And more software products are coming on the market to help do this. Blue Martini Software, San Mateo, CA, founded by Monte Zweban, who had founded Red Pepper Software, is about to hit the market with a new server package called E-Merchandising Solution, which helps target products on personalized Web pages by demographics.

Retail Target Marketing Systems (RTMS), Waukesha, WI, which coaches bricks-and-mortar businesses on direct marketing techniques, is now taking it to the Web. It is in the development stages of coming up with a system for data mining in e-commerce.

And Net.Genesis has a product called Net.Analysis that tracks how people are using a site and can change it accordingly. The behavioral information can been supplemented with third-party data.

“The e-commerce tools are in their infancy,” says Forrester Research’s Gillett. “Right now it’s standard query, reporting and analysis tools. They’re hard to use and with e-commerce there’s just so much data.”