Posted on by Chief Marketer Staff

There are no big surprises in DIRECT’s annual Web use survey. Across the board, direct marketers are creating Web sites. Across the board, DMers see these sites as a necessary channel. But they have yet to determine the benefit to their bottom lines.

There’s little question Web site use is growing: 72% of our respondents have a Web site, up from 67% last year. Companies that focus on business-to-business are most likely to have such sites (80%), followed by mixed-focus firms (73%) and consumer companies (67%). In last year’s survey, those figures were 77%, 68% and 59%, respectively.

But the purposes vary. Some firms are treating their Web site as a viable channel, others as a necessary expenditure to keep from losing market share.

“In my business, if you do not advertise, you will not be a player,” says David Corcoran, vice president of online trading firm Trading Direct. “I need to advertise to get my name out there. As a sales tool, you have to be on the Internet.”

But this doesn’t mean that Web sites are viewed as profit centers. Only about 15% of all respondents indicated their Web leads are more profitable than those generated through other channels. Another 15% said that Web leads are equally profitable, while 16% said they are actually less profitable. Nearly one-third said it is too early to gauge the profitability of such orders.

This does not represent a large change from last year, when 14% reported that leads generated from Web sites were more profitable and 19% said they were equally profitable. But there was a small uptick in the number saying their Web-sourced leads are less profitable: Last year, this figure stood at 9%.

This may be due to the way DMers calculate the profitability of Web-generated leads, says Neesha Sakhrani, manager of interactive solutions at KnowledgeBase Marketing, Chapel Hill, NC. Sales captured entirely through the Web are more likely to have a greater profit margin. However, when the Web is used only for informational purposes and consumers must call a toll-free telephone number, it is important to record that the final cost also includes inbound telemarketing.

“When you don’t close the sales on line you have to get into the multiple channel costs,” says Sakhrani. ” [But] whenever sale of your product requires education, it is better to send your customers to the Web first.”

The idea that a Web site may generate revenue but not profit was backed up by this year’s survey responses. Among firms that have Web sites, 58% anticipated an overall revenue increase in 1998. But only 39% of the firms without Web sites expected a hike in revenue.

Conversely, only 33% of those with Web sites predicted that revenue would fall or stay the same, compared with 54% of those without sites.

The playing field becomes more even when it comes to margin: 39% of the firms with Wen sites expected their margins to rise in 1998compared with 37% for firms without sites.

“Building an infrastructure to do e-commerce and web commerce is expensive,” observes Sakhrani. She notes that there has been a lot of evolution in the nature of Web sites since 1996: early sites featured flat, static copy, while upgraded sites take advantage of software capability and functionality. “It has been eating away at a lot of money.”

“Five years ago we developed our first Web site,” says founder and president Jim McCann “It was our anticipation that this was a one-time expense. Oh, were we wrong. Margins are not growing because of the costs incurred in launching and maintaining a Web site.”

McCann feels that the days of revenue-sharing programs with portals are over, and that most online marketers are looking to build affiliate programs and to create collaborative efforts.

There was little difference in the percentage of company revenue derived from direct marketing between firms with a Web site (43%) and those without (46%). But there was a larger gap in direct marketing spending levels. Companies with Web sites spend an average of 45% of their marketing budgets on DM, compared with 37% for those without sites.

Budgeting for the Web can bring its own problems. Web budgets can stretch across several departments, Sakhrani says. IT budgets tend to be used for maintenance purposes, while promotion departments underwrite the purchase of banner advertising.

Getting traffic is another challenge. “I have been talking to a lot of people, and all of us are groping to find the right mix [of online advertising],” says Ed Mufson, president of, an online apparel company. Mufson. has experimented with a several vehicles to drive traffic to his site, and found that found that banner ads on search engines are not an effective method. “I have never heard anyone say ‘I love banner ads. I can’t wait to buy banner ads,'” he says.

McCann feels that the most successful online efforts are being managed by companies well-versed in direct marketing practices. “Companies that are in the direct marketing business are the most comfortable in this environment because it has the most kinship to it. The Internet is going to make everybody a direct marketer. More than that, it is going to make everybody a relationship marketer, or at least those that survive and prosper.”

If that’s so, Web marketers have some catching up to do: Respondents from companies that do not have Web sites reported a slightly higher incidence of maintaining formal loyalty programs (29%) than those that do (25%). In a similar vein, those without Web sites were more likely to measure lifetime value (57%) than those with. This may be rooted in traditional direct marketers’ willingness to embrace such analysis, as opposed to relatively younger Web companies that do not such tools-or are just not old enough to have usable customer data.

But this will likely change during the next few years: Respondents from companies with Web sites contact their customers more frequently (47 times) than those without (32 times) in an average year, owing partly to the relative lack of incremental expense involved once an e-commerce system has been set up.

Functions of Web sites remained largely unchanged from last year. The most frequently cited use was dissemination of information about the company and its products, which at 88% was only slightly higher than last year. This was followed by generating leads to be followed up by direct mail, which also rose by one percentage point, from 59% to 60%.

At 59%, generating leads to be followed up by telemarketing was one of the few functions that decreased in the number of people citing it. Generating leads followed up by e-mail was fourth, at 50% up from the 48% citing it last year.

Not surprisingly, companies that do not have Web sites are planning to rely more heavily on mail volume in 1999. Mailings to in-house lists are seen as increasing by 62% of those companies that have Web sites, but by 74% among those that do not. And there was a ten-percentage-point differential among forecast use of outside lists as well: Among those firms with Web sites, 49% anticipate increases in their mail volume, while 61% of those that do not have Web sites plan increases.

“We have not done direct mail,” says’s Mufson. “Once you go off the Web you are faced with tremendous [potential] losses, and we do not have the money.” As a Web merchandiser, Mufson feels he has not fully tapped the online market yet. “We have probably reached one million people. That leaves 119 million people [worldwide on the Web] to go, and the numbers on the Web change every hour.”

This year’s Web use survey was conducted for DIRECT magazine by The Wagner Group, a New York market research firm. The survey was mailed to 1,000 DIRECT subscribers chosen on an “nth”-name basis. An initial copy of the survey, offering a $1 incentive for participation and a chance to win one of three Harry & David gift baskets, was mailed on Sept. 8. A follow-up copy of the survey, along with another sweepstakes offering, was sent to non-respondents three weeks later.

Results are based on 195 qualified respondents.

Seventeen percent of the respondents identified themselves as manufacturers, while 16% were publishers and 7% called themselves retailers. Eight percent came from financial services, 6% self-identified as communications firms, 6% said they were consultants and another 6% indicated they were with nonprofit fundraising organizations. The remaining 34% came from a variety of categories that included list services, healthcare, insurance, wholesaling/distribution and data processing.

The median revenue specified was $9.4 million. Just under 28% of respondents indicated annual revenue under $1 million, while 10% reported revenue between $1 million and $2.5 million, 6% had revenue of $2.5 million and $5 million, and 5% between $5 million and $10 million. Nine percent reported annual revenue between $10 million and $25 million, 14% between $25 million and $100 million and 10% between $100 million and $500 million. Four percent reported income between $500,000 and $1 billion, and 11% had revenue in excess of $1 billion.


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