Fulfillment: Click Happy

FULFILLMENT: $3.8 BILLION

Online endeavors drive a 15.3-percent rise in fulfillment spending.

The fulfillment industry found 2000 to be, well, fulfilling.

Despite the dot-com flash-out late in the year, the increasing viability of online sales and promotions sparked healthy growth in the segment, with spending rising an estimated 15.3 percent to $3.8 billion, according to PROMO estimates based on industry sources.

In addition to the Web, a second driver of growth was the retail sector, where some chains cleaned up their rebate programs and others tapped fulfillment houses to handle merchandise returns.

“I think the best development was using the Internet in conjunction with a promotional strategy,” says Steve Dersch, director of marketing at Lubbock, TX-based United Marketing Services, whose revenues improved 20 percent. “It was the first year that we saw the impact of the Internet component on our business.”

E-tailers continued to woo consumers with sweepstakes, a trend which multiplied as more sites launched and existing sites redoubled traffic-building efforts. “It’s an effective and cheap way to drive traffic to a Web site,” says Mark Pearson, vp-sales and marketing for fulfillment house Young America, based in Young America, MN. “We probably get 15 [sweeps] inquiries a month compared to fewer than five previously,” mostly for Web-based sweeps, add Dersch. Both traditional marketers and the dot-commers “want to get the users on the site, then develop a closer relationship, creating more one-on-one marketing,” he says.

While the trend elsewhere in the industry is for smaller prize pools with higher perceived value, “no one’s giving away houses” on the Internet, Dersch says. And for fulfillment houses, smaller prizes generally mean more (and more frequent) winners, which translates into more business.

The current sweeps fever could divert dollars from ad budgets permanently, says Terry Cunningham, president of Cottonwood Enterprises, a Bozeman, MT, fulfillment operation specializing in games of chance with such clients as Hasbro and Adidas. “There’s more of a need for a call to action to drive people to Web sites,” says Cunningham, whose sales grew 13 percent in 2000.

The Internet is also bringing a greater need for fulfillment of sampling programs, which online are proving to be more effective for trial and purchase — and therefore, a better investment for marketers.

“With the Internet, people are actually requesting the samples and you know there is interest there,” Pearson says. “It’s absolutely more expensive to do targeting of any kind, but with the Internet, if you factor out the waste and factor in that you’re getting more information, it just makes more sense to do it.”

Retail Detail

Renewed interest in rebates sparked activity among retailers last year. “2000 is the year the retail fulfillment thing took off,” says Joe Jacober, vp-customer relationship management at Continental Promotions Group, Inc., Scottsdale, AZ. The company’s 40-percent growth came through such retailers as CompUSA consolidating their rebate programs. The computer chain “uses rebates more and more as a focal point. They’re turning rebates into a merchandise program,” Jacober says. “Retailers are starting to understand that rebates are good things.”

As the economy cools this year, fulfillment houses expect rebate work to increase for both offline and online programs. Online services let consumers redeem rebates more easily, and track the progress of their redemption.

Retailers also are leaning on fulfillment vendors to handle product returns, which is crucial to customer service and increasingly is being viewed as a marketing function. “Returning products is one of the top three priorities for consumers. If it has a good return policy, people will think highly of the company,” says Brian Asparro, an analyst at research firm The Winterberry Group, New York City.

Witness the birth of such services as Returns Central, Pittsburgh, which launched in May 2000. The Web-based company’s reverse-logistics software controls that pain-in-the-pocketbook known as the reverse supply chain.

Still, 2001 will be a tricky year for online fulfillment ventures such as Lowell, MA-based Ordertrust.com (launched March 1998) and SubmitOrder.com, Dublin, OH (May 1999). Such vendors helped their brethren startups skirt the estimated $30 million to $40 million it would have cost to handle their own fulfillment. “But as Internet pure plays go bankrupt, what are these fulfillment houses going to do?” Asparro asks.

That kind of worry is contagious.

“In 2000, even though the stock market went into large decline, the promotion industry was OK,” says Tom Conlon, president of promotion fulfillment company D.L. Blair, Inc., Garden City, NY. “I’m not sure that will be the case in 2001.”

SNAPSHOT:

• Spending rose 15.3 percent to $3.8 billion.
• Dot-coms relied on timely fulfillment to improve customer service.
• As customer service overlaps with marketing in coming years, watch for fulfillment houses to bridge the markets.