Winning Bids

Dr Pepper/Seven Up Cos. launched the soft drink — picture the 7UP logo, upside down — by auctioning off the first 31 cases. The early-November launch put a Grammy Award trip and tickets in the first case off the production line, fetching $5,100. Other cases had certificates of authenticity and T-shirts. Ultimately, dnL made a splash with the 18-to-35 audience and raised nearly $10,000 for non-profit Rock the Vote.

The week after the auction, single-serve bottles of the caffeinated green pop hit store shelves in 60 percent of the U.S. It rolls national this month, with 12-packs and two-liter bottles on deck for April. Meanwhile, eBay-ers auctioned off single bottles of dnL into December.

Welcome to the era of auction marketing.

Online auctions could take off this year as more marketers dabble with bidsheets, and eBay courts partners to keep its own pipeline full. Although Burger King shut down its highly touted BK Rewards loyalty program after a three-market test, postponing its national launch (April PROMO), two trends are driving the popularity of auction marketing. Brands from packaged goods to airlines are hosting auctions to bolster loyalty, drive short-term sales, or stir excitement for new products with an under-the-radar launch that lets consumers feel like they discovered the brand. Meanwhile, eBay — with 55 million registered members and roughly 600 million auctions a year — is building a roster of partners to keep inventory coming in and help boost revenues to $3 billion by 2005.

San Jose, CA-based eBay has been courting marketers through longtime partner America Online; business is up sharply the last 18 months. “There’s a passion for auctions that marketers want to capitalize on,” says Don Albert, eBay director of business development and strategic partnerships. “They want to tap into this pop-culture phenomenon.”

Auction-based loyalty programs foster higher participation and lower costs. Bidders track auctions, so they’re “touched by the brand four or five times,” says Nanda Krish, ceo of FairMarket, a Boston-based tech firm that executes promotional auctions for eBay (which has minority ownership in FairMarket). Plus, marketers can track bidders’ moves to get rich data based on action, not on focus-group fodder. “These are actions marketers can respond to — it’s what consumers tell them to integrate into new products and future campaigns,” says Krish.

Auctions also can be tailored to audience segments, says Hal Rossiter of Hal Rossiter Consulting, New York City, and architect of BK Rewards. “You can identify a niche audience because you have direct communication and data, and can offer very specific rewards.”

An established auction becomes a conduit between partners (who often supply bid items) and a target audience. “If you’re bringing in millions of customers a week, you can offer ads or private auctions,” says Rossiter. “It’s an amazing opportunity for partners.”

EBay is clearly the strongest auction brand, although Yahoo handles some loyalty programs, such as Kellogg’s Eet and Ern (July PROMO). “The eBay brand gives you a headstart with consumers because they know it’s an auction,” says Rossiter, who worked with eBay to set up BK Rewards. Adds Krish: “EBay democratized the auction. There’s no consumer learning curve.”

Increased marketing is part of eBay’s growth plan to hit revenues of $3 billion by 2005, up from $1.18 billion in 2002. EBay has stepped up recruitment of marketers and since January 2002 signed deals with Sotheby’s, Priceline, and Sears to keep its virtual shelves full. EBay bundles auctions into marketing programs (serving brands before, during, and after a sale) with banner ads, promotional placement on its home page or specific pages, and e-mail messages — eBay sends 11 million e-mails each day. “We’ll pour our users into your program,” says Albert. EBay’s users are “the most natural prospects for auction-based loyalty programs,” he adds (24.2 million are “active” users who have, bid, bought, or sold in the last 12 months).

Continental Airlines tapped eBay to extend its OnePass frequent flier program. Sports teams and entertainment venues gave the airline a cache of tickets from Carnegie Hall to the NFL’s Houston Texans. “We had trouble finding a way to give them to people who wanted them,” says manager-electronic channel marketing Ken Bott. “The politics [of frequent-flier miles] make some customers feel more important than others. We wanted to make a more even playing field, and didn’t want to make access seem choosy.” Auctions let Continental lay out a limited number of tickets and let OnePass members bid miles for them. People choose the events that interest them.

One guy was so hot for the box seat at a Cleveland Indians game, he put his secretary in charge of bidding when he traveled. He ended up paying 200,000-plus miles for it, so Continental asked the team to do something special. The Indians let him throw out the first pitch.

Some of the Houston-based airlines’ inventory is more mundane. First-class amenity kits — out of use since early 2002 — fetch 500 or more miles from nostalgic travelers. Flight crew aprons designed by artist Peter Max for the millennium sold well, too.

As early as this quarter, Continental will let its 20 million-plus OnePass members buy event tickets with miles, which never expire. “The venues we sponsor are open-minded enough to do it because we add value to them,” says Bott, who credits Continental’s close-knit marketing group with the nimbleness to beat other airlines to market.

Continental first mulled auctions nearly two years ago; it had the funding, but not the technology. EBay called when it launched its travel service last February, and the partnership “made sense from a branding perspective because of the eBay name,” says Bott. After six months, “we’re starting to see people’s behavior and understand why they make their decisions.”

Auctions are a database boon, twice over. First, packaged goods’ on-pack codes (often used as currency) let marketers track which consumers bought which product (flavor, size, quantity). Second, marketers watch bid behavior to better court individuals one-to-one. EBay’s users “have organized themselves into thousands of communities based on what they buy or collect,” from teddy bears to cars, says Albert. “Marketers can target psychographically as well as demographically.”

There’s so much rich data that someone needs to guard it, Rossiter warns. “You’re generating tons of specific data about specific customers, and it’s tempting to contact them. It might be legally correct but stupid to go to people too often,” he says.

Then there are fanatics, who’ll camp out on a site and dominate bidding. “To protect the integrity of a program, you have to keep them off,” says Rossiter, who has had to boot cheaters and overzealous bidders. “You have to manage it so they’re not a problem for mainstream consumers, but still not displease those customers.”

Last year’s highest-profile program, Burger King’s BK Rewards, folded Nov. 27 after reaching only three markets: hometown Miami and its two initial test markets, Albany, NY, and Erie, PA. BK initially planned to roll out nationally in 2002, but scotched that plan when a sales slump complicated parent Diageo’s sale of BK to an investor group including CEO John Dasburg. “We concluded the test phase and are evaluating the program’s role in our overall marketing strategy,” says BK spokesperson Kim Miller. “We’re in the middle of a price war now, and our focus is at the front counter.”

BK bartered for nearly all auction items, from magazine subscriptions to cruises. That kept costs down, and gave the “tens of thousands” registered members a wide variety of goodies.

“Marketers like our loyalty programs because they can forecast and control their liability,” says eBay’s Albert. “We forecast what prize pool will be needed, and the marketplace sets the value. It gives marketers better control than some traditional loyalty programs,” like Procter & Gamble’s Pampers Perks, which suffered over-redemption last summer.

Packaged goods brands from Kellogg to Frito-Lay host auctions on their own sites, with on-pack points as currency (July PROMO). An auction-based continuity strategy is especially valuable in categories where consumers like variety — cereal and snacks, for instance. A points-based program can keep consumers grazing inside a company’s portfolio, rather than drifting to competitors.

Beyond loyalty, auctions can drive short-term sales. H.J. Heinz Co. targets nine- to 14-year-olds with a Ore Ida Bagel Bites Exteme Redeem auction that runs December through May. Kids collect on-pack points, then go to bagelbites.com to bid on prizes from snowboard lessons and PlayStation 2 videogames to T-shirts. Think 360, Hawthorne, NY, handles the campaign; FairMarket takes care of the back end. Heinz wants to boost purchase frequency and engage kids online.

The trick, of course, is complying with COPPA to protect kids’ data. That’s especially important when auctions track bidders’ actions — kids (and their parents) need to know what marketers are watching, and how they use the involuntary data they collect.

Coca-Cola Canada’s Coke Auction was the centerpiece of its summer 2002 campaign. Coke put “Coke credits” on single-serve bottles of six brands; users registered credits online to bid on items from movie passes and CDs to trips overseas or a studio recording session. Weekly “Wow” items and sporadic “Blitz” items kept players coming back. Technology items “went very quickly,” says Joanne de Visser, brand manager for Sprite, Barq’s, and Mello Yello. Fashion and music goods catered to Coke’s teen and young-adult audience. Coke also tapped its fountain and retail customers, including Burger King, Cineplex, and Blockbuster, for prizes. “It’s a good way to support our customers and give them national exposure,” de Visser says. Most goods were popular national brands; some “Buy Now” prizes came from local entertainment venues.

Players could buy some items outright. “Those ‘Buy Now’ items sold out faster than we planned,” de Visser laughs. “We’d post items at 8 a.m. and they’d be gone by 8:20. It was tough to keep that area filled at the end,” when people were dumping points before they expired.

Live-streaming — a first for online auctions — let Coke Auction players watch bidding without refreshing their screens; automatic extensions kept auctions open for five minutes after the last bid to prevent ringers from last-minute steals. Marketing Drive handled the campaign; Edeal Services Corp. handled the back end (both Toronto).

Coke’s U.K. division first used auctions in 1998, and units in Australia and France picked up the model. It also served as a blueprint, in part, for the six-month-old U.S. site Cokemusic.com, where players enter random-draw sweeps using points (“decibels”) found under the cap on 20-ounce Coke Classic and earned at the site (like answering a quiz or drinking a virtual Coke). Drawings — held in Decibel Central, through Feb. 11 — have three tiers of prizes that require different amounts of decibels to enter. Players can track how many other entrants there are for each item, and that’s where the auction strategizing comes in. “You can control the odds by entering for items with fewer entrants. You actually select the prize you want, compared to a traditional under-the-cap sweeps where the prize might have no meaning to you,” says Coca-Cola brand manager Betsy Pyle Armentrout.

Latecomers with fewer points can still win; non-winners get their points refunded to use again. That encourages participation: Cokemusic.com members average 34 minutes per visit. A tie-in with American Idol wrapped up last month by giving away the two red couches from the show’s Coca-Cola Red Room via Cokemusic.com draws.

Other types of promos tied to auctions add value. Take Hallmark Cards: A holiday tie-in with the Hallmark Keepsake Sweepstakes gave eBay bidders an automatic game code each time they bid (or asked). The six-week watch-and-win dangled a different prize each week, each tied to a Hallmark Channel holiday show. EBay was allotted 80 million of the 140 million game pieces. Concept One, Westport, CT, handled.

Auctions also can be a cheap, targeted channel of distribution for older items or niche products. IBM Corp. and Dell sell refurbished PCs on eBay. “Marketers don’t want to conflict with existing distribution channels, so they don’t sell products at the peak of their life cycle, but rather, at the end,” eBay’s Albert explains.

For niche items, witness Motorola Corp.’s nine-month-old store on eBay. It hosted an August auction to launch its V60i mobile phone and tout its features, inside and out. Each day that month, Motorola put three phones up for auction on eBay; top bidders got to customize their phones, including a nameplate, address book, and calendar info. Schaumburg, IL-based Motorola expected to sell 100 units through eBay.

Limited-distribution items fare well, too: “Even before marketers latched on to this, people have been coming to eBay for hard-to-find things,” says Albert. “Savvy marketers have latched on to that.”

And the bidding isn’t over yet.