The Modem or the Mailbox?

The buzzwords of online marketing circle our heads like electrons around the nucleus of an atom: “one-to-one relationships,” “permission marketing,” “mass customization.” So how does a company make the transition from catalog marketing to online? Office supply giants are discovering that some of the proven methods of the past are likely to be the fastest and surest way to securing the future.

Office Depot of Delray Beach, FL, decided to target the small office/home office market (SOHO), after company officials realized its money-making potential. According to statistics from New York City-based global economic consultant WEFA Group, the overall market for business services including supplies for the home totals $7 billion and is expected to be growing 11 percent a year by 2000.

Office Depot’s aggressive campaign had one aim: “We were going to use targeting and a combination of direct marketing techniques to convert people who used catalogs to buy online,” says Keith Butler, executive director for marketing and merchandising at the company’s new online unit in San Francisco. The company quickly decided that traditional direct marketing methods – like direct mail and database marketing – would be indispensable elements to the success of the plan.

Not enough volume to make it profitable – that was the reason office supply catalogers tended to ignore the SOHO market segment in the past. But Office Depot officials instead focused their eyes on the 40 million Americans nationwide who work out of their homes.

Working in conjunction with Los Angeles-based Viking Office Products, which it acquired last year, Office Depot carefully chose the campaign’s five regional trial markets because of their Internet usage levels, picking San Francisco, Seattle, Dallas, Denver, and Miami. But the company relied on good old snail mail at the outset. “We knew traditional direct mail would play a crucial part in reaching our customers,” Butler says.

It also prepared online banner ads. “We treat online advertising as a direct marketing vehicle,” he says. The company used creative on its Web banners designed to appeal to the targeted customer, usually an office with four employees or less.

The direct mail effort was tested first. The actual campaign was scheduled to last three months, and testing took up almost half that time. “We wanted it to be personal, catchy, responsive,” Butler says. The new effort was also intended to advocate the office products category as available online and, at the same time, mount a big branding effort.

The direct mail drop was “up in the high six figures,” and used two different pieces – a postcard and a self-mailer, according to Butler. Both versions included a special offer: New customers saved $20 off any $100 purchase. Butler refuses to say which worked best, but claims that response was “terrific.”

Office Depot also slapped banners on the sides of city buses in the five regional markets, and added radio spots and ads in business journals and newspapers.

The program’s tagline, “Botta bing, botta boom!” also proved to be a big hit. “We were told later that people were taking the ads off the sides of the buses. It had kind of a cult appeal,” Butler says. But what really drove the campaign was its “comprehensive nature,” he says.

Responses produced by the mailing were dealt with promptly by Viking. According to chairman Irwin Helford, Viking offered overnight delivery “in any country we operate in, and same-day delivery” free in 22 major U.S. cities. “Our service can be described as fanatic.”

Viking, which is a catalog marketer, also helped target prospects using the Standard Industrialization Classification (SIC) code. Explains Helford, “The SIC tells us instantly what type of business we’re dealing with – whether it’s a beauty shop or an accountant or a wholesaler.” All that data is worked into the marketing program at a low cost, he says.

Office Depot is already planning another campaign. “It’s gratifying to know that we’ve managed to bring high value and convenience to the customer. Answering the question, ‘Does my message resonate with their needs?’ – that’s the key phase of any campaign,” Butler says.

The officedepot.com Web site is thriving as a result. “We get 200,000 visits a day,” Butler says.

Another office supply giant, Cleveland-based OfficeMax, is also zeroing in on SOHO, even though the segment currently accounts for less than 5 percent of the company’s annual $4 billion in sales. “We regard SOHO as highly promising,” says senior vp Mike Weisbarth. In fact, OfficeMax began mailing supply catalogs to companies with one to 20 employees 15 years ago. “We originated the practice,” Weisbarth says. OfficeMax continues to mail those catalogs to its 850 retail stores.

The chain set up its first Web site back in 1995. “We were the first (of the giants) to go online, because we saw the SOHO segment as promising,” Weisbarth says.

Part of OfficeMax’s strategy involves piggybacking on specialized Web sites designed to assist small businesses, including one developed by Mountain View, CA-based financial software company Intuit and Web search engine Excite, Inc. For Intuit, direct mail and e-mail programs were key to informing small business customers and targeting outside prospects. The quickenbiz.com site is accessible through Excite’s Web Crawler search engine, and delivers a big small-business audience.

Old Reliable At least one SOHO marketer is still making a lot of money the old fashioned way. Reliable Corp. of Schaumberg, IL, conducts traditional direct marketing via a Home Office catalog first launched 10 years ago. The book pulls in $300 million to $400 million in sales per year, with average orders running about $125, according to Reliable residential business manager Pat Heyne.

“We target two distinct SOHO customers with two distinct products,” Heyne says. A consumer catalog targets people who work in the home, own a personal computer, and need to create an office area. They are “upscale, well-traveled,” and want a work center “that blends into the home,” Heyne says. Further, they aren’t price-conscious, which is why Reliable prospects through customer lists like Sharper Image and Hammacher Schlemmer.

Reliable’s Home Office catalog goes to 30 million addresses and sells products ranging from office furniture to business machines and telecommunications equipment. Its typical buyers are among the 17 million self-employed Americans: salespeople, telecommuters, even the downsized. This group is not upscale, is price-conscious, and wants “budget-type” office furniture, Heyne says.

Like Viking, Reliable uses SIC codes to help fine-tune offers to these consumers: “We have identified a few characteristics, which we keep proprietary, that allow us to go into a database and extract the prospects most likely to respond,” Heyne says.

But even Reliable isn’t oblivious to the economic promise of the Internet. The company launched a Web site last year, and is aggressively revising it to be “more user-friendly,” in order to target “an even larger chunk” of the SOHO market, Heyne says.

That task isn’t easy. In the SOHO market, the needs aren’t as great, response volume is lower, and targeting must be precise “if you are to get your investment back,” Heyne says. But the potential rewards are great, too: “It’s definitely a growing and very promising market,” he says.

In the end, the cost-effectiveness of Web marketing may be the deciding factor. Brian Cassedy, president of the National Home Office Association, certainly thinks so. The organization moved its operations online to save money and because of the convenience and ease it provided in reaching members and prospects. Cassedy says it used to cost NHOA between 75 cents and $1 for a direct-mail piece. The cost of an e-mail is “a pittance by comparison,” he says.

NHOA represents several thousand self-employed people and part-time professionals and telecommuters working out of their homes. As with Intuit’s quickenbiz.com and Office Depot’s In Business Web site, www.nhoa.org offers discounts on products and services as well as how-to advice on management and saving money.

“Dollar for dollar, there is no medium more efficient for reaching customers than the Internet,” Cassedy says. To work, Web sites must “be simple – simple is better. ” Cassedy praises Internet life insurance company etermlife.com for its efficiency and convenience. “Once you see the company’s banners, and you want a quote, you put in your birth date, you click, and in two seconds you have a quote on a premium. It’s instant gratification. If you don’t like the price, you don’t call. There are no self-mailers, nothing to mail.”

Cassedy does acknowledge, however, that “direct mail and those things are perfectly fine” as part of a campaign to grow Web traffic.

So if the Internet is the probable future for the direct marketer, even Cassedy acknowledges that the old methods, like direct mail and database targeting, are the likely tools to get everybody there.

THE SOHO MARKET * Market size: $7 billion a year

* Expected growth: 11 percent annually by the year 2000

* 40 million Americans work out of their homes

* 17 million are self-employed