Offer: Adding Value to the Customer Relationship -

Targeted Internet Advertising – Moving from Impression to Response:

The role of the Web has changed over the past few years. Until 1996, most advertisers created their Web sites to present so-called "brochure-ware", an electronic version of catalogs and brochures, by exporting the information directly from printed materials. The banner ads on heavy traffic sites were soon linked to their own Web sites to generate traffic. The old rules of traditional mass advertising such as Cost per 1000 impressions (CPM) pricing model were applied to the Web advertising due to the lack of understanding of the Web’s true interactivity.

In 1997, both DoubleClick and PointCast announced that they would sell ads on a cost-per-response (CPR) pricing model for their ad space. Banner ads are measured by "cost per click through" which is a direct measurement of response and ad performance. DoubleClick’s proprietary technology that pinpoints targets, controls reach, and determines frequency enables the company to provide advertisers with a more targeted audience in order to better craft their ad campaigns. DoubleClick also uses cookies to track the degree of a particular ad exposure to the same individuals. Despite its definite advantage over the CPM pricing model, however, the overall average for click-throughs for all web advertising is 2%, reflecting the ineffectiveness of current targeting techniques. Web sites tend to avoid such direct measurements, as poorly designed advertisements will not be clicked on, reducing revenue.

Currently the Internet is moving toward providing more direct interaction with sales prospects and existing customers, and many companies are trying to exploit the full potential of the Internet as a powerful and cost-effective medium for building customer relationship on a mass scale.

Many believe that direct marketers are better positioned to leverage Electronic Commerce on the Internet than are traditional marketing or retail organizations. The rationale behind such belief is that the standard direct marketing operating model contains many of the required functions and skills, such as database marketing, response analysis, order fulfillment, and customer service, necessary to properly exploit Electronic Commerce. Internet enables companies to achieve direct targeting of specific marketing messages to specific individuals identified through their online behaviors at much lower cost and shorter cycle times than traditional, print-based direct marketing. It is a potentially ideal medium for one-to-one relationship marketing. Forrester analysts predict that direct marketing will soon outweigh banner advertising as the best way to reach customers on the Web, and that by the year 2000 nearly 80 % of Web advertising dollars will be spent on direct marketing.

Relationship marketing on the Internet

There are currently only around thirty to forty one-to-one marketing applications on Web sites, but this market is expected to grow rapidly this year with over one hundred vendors offering different types of one-to-one software. Main markets for one-to-one Web software are banks, retailers, and intranets or extranets that could use the software for knowledge management in which different employees would see different Web content. The total market for one-to-one software probably will be over $250 million in 1998.

Due to the popularity of the Web, competition for Web consumers is becoming fierce and companies who can provide truly personalized information and experiences for consumers are believed to have a substantial advantage in the marketplace. Through the use of personalized pages, collaborative filtering and purchase incentives, companies can turn a passive, catalog-like commerce site into an interactive online store that rewards customers for their business.

One way to achieve this is to make the visitor feel welcome to return. Personalization systems such as those included in Microsoft's Site Server often use cookies to identify visitors and back-end databases to store preference information. This lets the E-commerce site dynamically build information into a user's shopping page, such as items the user previously purchased, and also makes it possible for users to customize the interface so it shows only items that interest them.


The most popular one-to-one technology particularly in business to consumer on the Web today is Personalization. Personalization is a technique that has been used in traditional direct marketing in order to differentiate customers based on their values. There is so much choice on the Web that it is becoming increasingly vital for Web marketers to differentiate their Web sites and services by dynamically creating personalized web pages or entire web sites. Personalized sites present visitors with real-time content tailored to their specific preferences on an ongoing basis giving the consumer a value-added experience, providing a compelling reason to revisit the site and helping companies build customer loyalty.

Currently there are three key technologies for personalization available, Collaborative filtering, Rule-based reasoning and Case-based reasoning. These tools make it possible to recommend products to customers based on purchase similarities with other customers.

Collaborative filtering is a recommendation system. An intelligent agent sorts previously created profile information of users and finds other people who are like them based on their profile and creates affinity group.

Firefly, of Cambridge, MA, markets agent technology that compares information that a consumer has provided on surveys to data provided by large numbers of other people to recommend products or services that the consumers might want. The user registers for Firefly Passport, which acts as a navigational command center for the various Firefly features and sites. Firefly uses a 1 through 7 scale rating system for recommendations. Barnes & Noble uses Firefly Passport for book recommendations and Yahoo! uses Passport on its customized site, My Yahoo!, which allows users to create their own web page and customized searches. Firefly claims it now has 2.5 million unique users.

GroupLens, part of the ongoing research project on personalized recommendation systems at the University of Minnesota and direct competitor of Firefly, offers collaborative filtering-based NetPerceptions that matches a database of users’ preferences to other user’s input and delivers product recommendations. Amazon uses NetPerceptions to create its book recommendations. Over 40% of Amazon’s customers are repeat buyers.

WiseWire uses collaborative filtering to take data retrieval to the next level by learning from users which sources are best for particular topics. The site organizes content into specific sources called Wired. Content is delivered from a wide range of sources but filtered according to users’ tastes. WiseWire’s approach to scanning and rating content is rather unique among the products mentioned. WiseWire combines the community-based algorithms of recommendation systems with more traditional artificial-intelligence techniques. The company describes its system as collaborative neural network systems.

Rules-based reasoning creates users profiles based on user preferences and information requests. It allows a company to apply traditional business logic to targeting content or advertising or products at an individual. For example, ‘if user is male and in the following age group and in the following zip codes, show him the following content’. It enables a fairly simple approach toward personalization based on profile information.

BroadVision, who specializes in Web-based one-to-one software, serves Fortune 1000 companies that expect a heavy demand for their Web sites to help them create close relationships with their customers. BroadVision’s One-to-One Web brand is built on a rule-based reasoning technology, consisting of various software tools. It allows a Web marketer to track individual users, dynamically change each Web page and matches an individual customer’s tastes and preferences based on their previous on-line usage. One-to-One Web matches a new user’s input to a set of predefined rules, and adds the templates, objects and business rules relevant to e-commerce. Kodak and the Internet Shopping Network have built stores using this software. One of the crucial benefits of One-to-One Web is that marketing managers can set and reset the company’s own business rules without any technical assistance by using a feature called Dynamic Control Centre. According to Internet Week, One-to-One has perhaps the most far-reaching personalization system, offering an end-to-end platform for personalization, content management, and dynamic Web publishing.

Micromass’ IntelliWeb developers tie content databases to expert system-based rules/facts databases that are triggered when a visitor’s information is entered. It dynamically creates each web presence in real-time, based on the current - individual - profile of each web site visitor and personalizes anything per visitor – text, graphics, Java applets, etc.

Case-Based Reasoning is a relatively new paradigm in the Artificial Intelligence field, in which new problems are solved by storing, retrieving, and adapting the solutions to previously encountered problems. It offers both a cognitive model of human problem solving and a concrete methodology for building knowledge-based systems. CBR is based on the premise that expertise is experiential in nature.

Cases contain and relate individual bits of knowledge about instances of things people have experienced.

Brightware’s Brightware 1.0 enables companies to actively solicit questions from Web visitors to engage them as sales leads so that they can turn their Net presence into a round-the-clock selling tool. Brightware 1.0 achieves this through its sales server’s inbound marketing agent that listens to customers, answers their questions, sends information, and refers them to sales automatically. The inbound marketing agent automates replies to free-form Web and electronic mail inquires based on an information extract technique combined (keywords and predefined rules) with the power of its own Case-based reasoning engine. Inbound marketing agent handles 50 to 80 percent of incoming requests, and accurately processes 95 percent of these instantaneously. Messages that are not understood by the system are routed to personnel. 24 hour instant response to customer’s inquiries enhances customer satisfaction.

Currently rule-based reasoning software package appears to be more widely used on the Web than collaborative filtering and case-based reasoning. The rule-based reasoning can be customized easily by non-technical users and allows them to change the rules on the fly without changing application logic. while collaborative filtering takes a more automated, black box approach, meaning users are not able to figure out what exactly happens in the system. Further, where the knowledge in a domain is well understood, a rule-based system is likely to be more compact and easier to use than the equivalent case-based system.

However, those technologies can be complementary, and in fact Firefly uses both collaborative filtering and rule-based reasoning with different products. Barnes and Noble’s online marketing uses both technologies. Brightware 1.0 also has both rule-based and case-based reasoning functionalities.

A major drawback of personalization is that it requires a huge database to be effective, therefore high-traffic sites such as Amazon and Barnes & Noble benefit from this technology. Personalization is still too costly (more than $250,000 for integration) to be widely accepted by smaller companies. WiseWire offers its software on a service-bureau basis, at $900/month for 5 subjects in order to accommodate small to medium size customers.

Hybrid marketing – online and offline direct marketing

Industry analysts believe that new trend is emerging in One-to-One software market. That is to shift from registration-based personalization and simple recommendation engines to a new era of more sophisticated, network-centric personalization and a new emphasis on combining online and offline data.

 LikeMinds recently disclosed a deal with Columbia House to deploy personalization features on the catalog marketer's new TotalE site. The deployment features one of the most aggressive uses of not only Web-compiled profiles, but also legacy direct marketing database information to personalize content and commerce offers on a website.

 The service offered on TotalE site is different from many Web recommendation engines in that it was integrated with data from Columbia House's 15 million-member user database. That information is used to create "archetype" profiles. If a user comes on the site and behaves similar to one of the archetype users constructed from the company's legacy data, the system recommends products based on that input. The user does not need to register to benefit from the system. LikeMinds' unique proposition is that it offers products for both online (its WebSell platform) and offline (DirectSell) personalization and database marketing.

 Another company that is focusing Web personalization from a traditional database marketing perspective is Engage Technologies. The company sells its Engage Suite of tools, which help sites collect and analyze web site data, then use it to target users with content.

 When the Engage.Knowledge database officially launches in March 1998, it will include more than 10 million separate user profiles. The company will then sell those profiles to any company that wants to create personalized content. The key to Engage.Knowledge is that all profiles are kept anonymous, and the company claims that those anonymous data are still useful enabled by some innovative technology. No personal information such as name, address is captured or stored by the system. And sharing of this anonymous user site behavior data is exchanged using a "dual blind" technology that further ensures a user's identity will be protected.

 Despite the fact that the Internet has a number of advantages over the traditional direct marketing as discussed earlier, the Internet has not yet fulfilled its early promise to supplant traditional print direct-mail catalogs. The obvious reason for this is that consumers still like the full-color print medium. Convenience of print catalogs and the ease of ordering using free 800 numbers are primary reasons for their preference. In addition, there is no consumer costs involved in print catalog.

 A recent alliance between Blau Marketing Technology’s Internet Marketing Server (IMS) and Moore’s "Web-to-One" Variable Color Imaging System addresses the above issue. Two companies technologies together enable to track individual behavior patterns on the Web, store that information in a database and then use that information to automatically print and mail a personalized brochure. The idea is to use the information gathered from the Web to automatically personalize printed marketing materials.

 E-mail and Web Incentives

E-mail gained momentum as a valid marketing tool as Internet incentive programs and ad-supported e-mail services took place in 1997. Research consistently finds that consumers are often as interested in communicating with product and service vendors via email as in tapping into their online product and service information. Membership-based direct response marketing systems that use a rewards program to increase the effectiveness of marketing campaigns are being offered on various sites.

 Intellipost Corp.’s BonusMail has collected 200,000 subscribers since its foundation in 1997. Its "Opt-In" approach, i.e., send e-mails to only those who ask for them, preventing spamming (unsolicited e-mails). Its strategy is to strike co-marketing deals with Web-based e-mail services designed to encourage more individuals to register for Intellipost’s loyalty reward program. Users get different levels of point rewards for receiving, reading and responding to direct marketing messages delivered by Intellipost. Intellipost charges rates topping $300/1,000 impressions. Intuit and Microsoft were its first advertisers. Reward partners are American Airline, United Airline, MCI and the Gap.

 ClickRewards’ Netcentives is the first program that leverages the success of traditional incentive promotions to drive electronic commerce on the Web. Online merchants use ClickPoints – a digital currency - to reward their Internet customers for activities such as purchasing products and registering or participating in surveys. ClickRewards’ clients include CNET Direct , Wells Fargo and Yahoo. It has six airlines as reward partners, which account for 80% of the 38 million frequent flyers in the U.S. It is a member of TRUSTe, an organization dedicated to protecting individual privacy and promoting the Internet as a safe and secure place to conduct business. Offer partners only pay for the ClickPoints that are actually awarded so it is a cost-effective way to build business.

 MotivationNet’s MyPoints program offers similar services, and it recently added 11 reward partners that include airlines, retailers, and hotels.

 Although E-mail is definitely an effective way of interaction with customers, the problem of unsolicited messages sent by irresponsible marketers still remains. Those companies mentioned above are very concerned about the problem, and they explicitly advertise the sanctity of customers’ privacy and that no other companies have access to their information. Most of them are also a member of eTRUST.

 Jono Online Services offers free Internet e-mail service to its subscribers, with the aim of exploiting the resulting "digital shelf space" to generate revenues through selling the space to advertisers, for direct product sales, or for the provision of optional billable services. In exchange for this free service, the only requirement of users is that they fill out a registration form, which allows Jono to target very specific and well-defined demographic groups. With a sizable user base, this can make for an extremely powerful direct-marketing tool. Jono currently has 1.5 million users.

 Community building

In direct marketing, many companies do frequency marketing and offer reward programs to customers who become a member of a‘club’ that companies form. Membership is an effective way of building relationships with customers. On the Web, a club becomes a ‘community’. Community building requires Web marketers to foster interaction between customers. Personalization and e-mail & Web Incentive programs described in the previous sections work best in community-like environment, as interaction between community members is likely to create trust and loyalty.

 Firefly’s approach emphasizes community, linking a user to other users with similar interests across a network of sites. Firefly compares usage profiles of members and, on the basis of this information, suggests other dimensions of the community a member might find valuable because members with comparable usage profiles seem to enjoy them. Like Firefly, WiseWire tries to create a sense of community for users.

Amazon also illustrates focus on community. Community encourages a feeling of greater involvement in the site and help to stimulate the sale of more books in the process.

 Search engines such as Yahoo, Lycos and Infoseek also expanded community-building services including free e-mail, chat, content channels, instant messaging and personalized searches. Yahoo! is broadening its offerings of media properties and the company is creating various destinations /channels to provide compelling target-market opportunities for advertisers and to expand its inventory of available advertising vehicles.

 Other successful Web marketers such as Well Fargo and Marimba offer campaigns involving on-line events, sponsorships and affinity programs that are created in a community–like environment.

Online Direct Marketing in action

 In Business-to-Business E-commerce, some leading companies are using the Internet, intranets and extranets to gain powerful competitive advantages in marketing, sales, support, customer service and product delivery. Strategic use of the Web also enhances communication and enables companies to attract new customer and increase long-tern customer loyalty.

 Dell and Cisco, two remarkably successful online direct marketers, are using the Web to track and distribute leads in real time as well as for direct selling. The Internet is giving those companies a new, fast and traceable way to distribute direct marketing generated leads to their sales forces.

As a result of Cisco's aggressive approach to E-commerce, the company currently is doing 41 percent of its business over the Web. Cisco is expecting over $2 billion in Internet business this year. In the last two days of the quarter, Cisco sold $20 million in networking equipment a day on the Cisco Connection Online site, which serves end customers and resellers. If the company's overall growth projections prove true, the networking giant will achieve a rate of $5 billion in online revenue per year by the end of its fiscal year in July.

 In the future, Cisco is planning to use IT to automate more of its sales, service and administrative tasks via Internet technology. The company already has reduced its advertising budget and is relying more heavily on the Web as a means of marketing its products.

 Dell's direct sales over the Web are also growing at an impressive rate. The company witnessed a 56 percent growth in its latest quarter. Dell Computer Corp. reported revenue of $3.7 billion for the fourth quarter ended Feb. 1 1998, an increase of 55 percent from the year-ago quarter. Revenue for fiscal 1998 increased 59 percent to $12.3 billion. Dell went from the fifth-largest PC company to third in 1997, based on unit shipments. The company attributed the gains to focusing on performance and service using the direct-sales model. The company said its online sales site generated sales of $4 million per day by year's end.

 IBM is quietly launching a major initiative to sell its broad portfolio of hardware and software products over the Internet. IBM plans to immediately begin selling PCs and an array of associated software on its site. Until now, IBM has been virtually nonexistent in this area, while low-end competitors like Dell Computer and high-end rivals like Cisco Systems have mastered efficient direct selling over the Web.

 Personalization and Next-Generation Intranets

Up until now personalization has been used in Consumer market than Business-to-Business sector. However, personalization technology as well as push technology is beginning to enter corporate intranets and extranets.

One in five managers among the 1,300 worldwide polled by Reuters Business Information say they believe employees waste vast amounts of time searching for information on the Internet, corporate networks, and intranets. Among these managers, 80% cited the crush of internal communications, including intranets, as a principal reason for information overload.

 To harness this vast amount of data, IT managers are looking ahead to technologies that will give each intranet user relevant, customized content. Companies are planning the next generation of intranets around technologies that offer intelligent agents, collaborative filtering, search and retrieval, and push delivery-all of which promise to slash search times for and boost access to needed information.

New York consulting firm Ernst & Young LLP, with $2.5 billion in sales last year and 30,000 employees worldwide, uses personalization extensively on its intranet. The intranet is based on the Search 97 search engine from Verity Inc., and can search more than 200 types of documents stored in repositories such as Lotus Domino, Open Database Connectivity-compliant databases, and document-management systems. Users at Ernst & Young have set up profiling agents on the system by specifying words and phrases they regularly search for. The search engine repeats the searches according to an hourly schedule set up by a systems administrator and notifies users of new matching content via E-mail, pus technology, and personal Web pages.

 Digital Knowledge Assets uses GroupLens in its DKA Information Environment, a system the company will soon install at networking company 3Com Corp. The system lets users store content such as Web pages or word processing documents as objects in an object repository. A Java applet lets users assign values to each object, describing its subject matter and ranking its importance. Users create profiles of their interests using GroupLens. Every Web page they request is filled automatically with content matching their interests.

 Dell later this month (March 1998) will begin loading its own branded Internet broadcast content, or push channels, on to its desktop systems. The channels will broadcast information about navigational tools, software updates and targeted marketing materials to its customers, making use of the push technology.

 Cisco is also evaluating an array of push, search, customer profiling, dynamics content generation and application framework technologies, and electronic commerce packages.

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