Building on Tradition

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While dot-coms and Internet start-ups grab most of the media attention, traditional brick-and-mortar companies have been working hard to integrate the Internet with their tried-and-true marketing strategies.

Advertising Age conducted an e-mail roundtable of top marketers representing the retail, fast-food, finance, automotive and package-goods sectors. These marketers discussed their key challenges and opportunities as they move their companies into the interactive future. An edited transcript follows:

Advertising Age: How have you used the Internet in your marketing efforts so far? How does this compare with efforts in your industry overall?

Joe Charno: Sears.com has engaged the Internet space at multiple levels -- strategic arrangements ensuring "tenant" positioning, affiliate programs, traditional banners, button advertising, sweepstakes and an internally managed e-mail marketing effort. We are also promoting our sears.com business in print and TV advertising for our Sears stores.

Sears.com is creating synergy with the Sears brick-and-mortar stores, offering the best of both worlds: the convenience and choice of researching and buying from home, or shopping at home then walking into a store to shop, touch, ask questions, buy or return merchandise. As a strong, established brand and a retailer with stores as well as an e-tailer, we have synergy that pure virtuals cannot have.

Lawrence Flanagan: We use the Internet in three strategic ways: No. 1, recognizing it as a new acceptance channel where consumers can use their MasterCards. As an example, we were the first brand in the payments category to portray online shopping in national broadcast advertising via our "Priceless" campaign.

No. 2, capitalizing on its direct marketing strength for acquisition and usage programs. Examples of this would be mastercard.com and the MasterCard Exclusive On-Line marketing program.

And, No. 3, as a media vehicle to support brand-building efforts with our key partners, such as Lycos, AltaVista, Prodigy, Barnes & Noble's bn.com and Preview Travel.

David Green: Since our "product" is not going to be delivered directly over the Internet, what we need to do is deliver through the Internet our overall brand experience, the values that McDonald's stands for, the respect we have for kids and families. We can use the Internet to connect with our customers on that level.

Of course, we continue to use the Internet to promote what is going on in our stores, including our Happy Meals, our promotional activities, our alliances with Disney, the Olympics, the NBA, Nascar -- you'll see them all on our Web site.

We've also been fairly aggressive with banner ads and other media uses of the Internet with our tie-in partners, as well as with some of the larger portals.

Kerry Olin: We are experimenting and learning about the Internet as a marketing vehicle, and we know our competitors are doing the same. We are partnering with Internet media properties to create connections between consumers and our brands, in contextual settings relevant for our brands -- for example, when one of our beauty care brands sponsors a feature on the Beauty Channel or one of the women's portals.

In a few cases, we are developing Internet media properties ourselves to accelerate our learning about the Web. We are engaging directly with consumers in relationship marketing efforts.

We are experimenting with using the Internet as a distribution channel by partnering with online retailers. A good example is Shop CG on the tely.

Cover Girl Web site. This provides consumers with the opportunity to make purchase decisions online and act on those decisions immediately. We are experimenting with entirely new business models for our core product lines. [Beauty site] Reflect.com is an example of this.

David Rooney: The Internet has become part of our overall communications strategy for our brands; it's not a stand-alone strategy. The Internet is more like the telephone than the television: It allows an individual one-on-one dialogue that's a great opportunity for us. It's the truest relationship marketing tool we've ever had.

Suddenly we have a new tool to facilitate unique dialogues for different individuals based on if they are prospects, active shoppers or owners. It depends [on] their relationship with us.

Our job as marketers is to educate people and provide them with information. Traditional media -- TV, print -- all have a mass feel to them. The Internet allows the customer to take more control over the information they need and enables us to provide that information in a form that's convenient to them. It delivers the detail of print and direct mail with the added potential of a unique connection with each individual.

In our business, the Internet plays a unique role in maintaining seamless communications between the brand, the dealer and the customer. Facilitating that three-way dialogue is what will epitomize automotive marketing in the future.

Paula Sneed: Internet marketing is a significant contributor to building our Kraft brand. We started in 1996 with the launch of a consumer-centric, companywide Web site, kraftfoods.com. Over time we have built brand value and loyalty by providing a variety of customized consumer services on our site and across the Internet through online advertising and marketing partnerships with content sites and i-grocers.

In 1999, we established an e-commerce division to accelerate Internet opportunities. In addition to our companywide efforts, we also are creating brand value and ubiquity through brand specific sites like altoids.com and gevalia.com.

The Internet is providing our brands and our company with an array of new tools and options to communicate with customers. Our e-marketing efforts have been focused on delivering the full impact of our brand promise by providing tangible evidence of our commitment to consumers. We are building greater brand value and more brand loyalty across our entire portfolio of brands through these efforts.

But what is really important is how consumers view/rate our efforts, and they are coming to our site -- over 65 million pageviews and 9 million visits in 1999 -- and signing up for our Internet e-mail services. They have been positively impacted by our online advertising and sponsorships.

We also recently announced our first e-business equity investment in Food.com, which reaches not only consumers but also our foodservice operators.

AA: How do you see your marketing and advertising strategies and use of media changing over the next five years? What percentage of marketing spending will be in interactive media in the year 2005 compared with today?

Ms. Sneed: Media used to be about how -- and how many -- of my consumers have I reached. This is no longer the only way to look at media. We see a new and elevated role as an avenue for us to have a conversation with our consumers and deliver more personalized, targeted messaging, products and services. Interactive media will provide us with real-time measurement and feedback about what works and what doesn't.

According to industry sources, in 2005 online advertising is estimated to grow by 200% over today, driven in part by the numerous devices that will be connected to the Internet. I expect Kraft will spend to the opportunity of connecting with our consumers in meaningful and mutually beneficial ways.

Mr. Flanagan: It's impossible to say what percentage of marketing spending will be in interactive media alone for one key reason: Our focus will be on interactive marketing programs that will be delivered with various media vehicles, both interactive and conventional offline forms In developing markets, however, as new online and interactive media take form, we may have the chance to accelerate brand-building goals.

Mr. Green: Someone asked Ray Kroc over 20 years ago, "What will McDonald's be serving in the year 2000?" His answer was, "I have no idea, but we'll be serving more of it than anyone else."

I expect incredible changes to be happening from a media point of view -- different channels of communication, how people will use the Internet, how marketers, retailers, brands will interface with consumers. I don't think advertisers have even started to unlock the strategic potential of these new media.

There's a balance that a retailer like McDonald's, which touches 43 million people a day, needs to strike. While we want to touch our customers through a specific channel like the Internet, we will for the foreseeable future require a mass media component. The more efficient and effective the Internet becomes at reaching certain niche audiences, the more the balance will shift in that direction.

AA: To what extent will privacy concerns hinder consumers' acceptance of ever-more-targeted interactive marketing and advertising?

Mr. Rooney: I think privacy is an issue that will be controlled by the customer. We approach it from a permission-marketing standpoint: It's important that customers give us permission to speak with them. If they say they don't need to be sent more information, we have to respect that.

As the Internet gets more customized, that should make it more relevant, and that's good for everyone. Instead of guessing who our best prospects are and sending them all kinds of information, we can send them the right information, and that becomes valuable -- it's not spam or junk mail.

Mr. Charno: Obviously, the Internet has served to increase privacy concerns with the consumer. In a permission-based environment, targeted/personalized marketing will thrive. The consumer will ultimately decide what level of targeted/personalized marketing is acceptable -- and it is up to the company to work within those boundaries.

Mr. Green: For a company that deals with children, I think there are some significant privacy concerns, and we support the efforts that are going on in the U.S. and worldwide to protect children. But I think more adults will accept or want to give information about themselves to potential advertisers because it means the communication they receive will be more meaningful.

For instance, our "McMom's" program a few years ago was targeted through the Internet to moms who wanted ideas on raising a family in this hectic world. We were able to touch moms and give them great ideas about how they can make their relationship with their children more exciting, more robust. Moms didn't have any problem giving us the information necessary to talk to them on a one-on-one basis.

It has to be a win-win situation -- a win for the advertiser in that we're able to target key audiences and a win for the consumer so they save time by having someone give them the information they really want.

AA: Will interactive advertising and marketing make traditional, less-targeted advertising and marketing obsolete? Where will traditional advertising and marketing fit into the grand scheme of things?

Mr. Flanagan: It's dangerous to label interactive advertising as non-traditional vs. traditional. By labeling this vehicle as such, it will be viewed as experimental rather than evolutionary. We view it as an evolution of the options available to reach consumers, and it will complement, rather than replace, other media.

It's also difficult to see the value of mass advertising and marketing diminishing anytime soon. Until interactive can prove it can build sustaining brand equity and awareness, I don't believe anyone will be running from the tried-and-true. There will most likely be a convergence of the two, not an either/or scenario.

Mr. Olin: We don't see traditional forms of advertising and marketing disappearing anytime soon. But as interactivity moves from the computer terminal to other vehicles, such as mobile phones, the number of messaging options a marketer has will continue to grow. This will put pressure on mass media to insure the value equation for the marketer is right.

Moreover, very soon, digital technology will add interaction and targeting to traditional mass vehicles like television. This will open up new marketing model opportunities.

Ms. Sneed: We have to walk away from the nomenclature "traditional advertising" to describe today's advertising and marketing environment. The Internet is having an impact on how and where we develop and deliver our marketing messaging today; what is unclear is how large and pervasive it will be.

Information and messaging on the Internet flows two ways, enabling a dialogue with consumers. As new and familiar devices that connect to the Internet proliferate, the ways in which we develop and deliver our messaging will change. This allows for ubiquitous and pervasive communications, the opportunity to connect with consumers through their PC, TV, phone and even their kitchen appliances.

This changes the nature of how we define advertising, and it mandates a truly integrated brand visual language. We will need to integrate our communications across new and "traditional" marketing channels in ways that will invite consumer participation.

AA: Are banners dying a slow death? If so, what modes of interactive advertising and marketing will be the most effective?

Mr. Flanagan: Maybe. But we have never considered [banners] to be a vital component anyway. They've played a temporary but important role of providing ad revenue to seed the growth of the Internet until a better revenue model can be established. You can't build a new brand or sustain an existing brand on banner ads. So the media properties that can show the best return on an advertiser's investment -- not just an antiquated CPM measure -- will be the winners.

Mr. Charno: Banner advertising has seen a decline in performance over the last four years. While banner advertising can still serve as an effective traffic generator, depending on the cost and the message, strategic alliances with demographically appropriate sites will help to target advertisements and improve preferred positioning with the consumer. Newer targeted ad-serving technologies must be considered, but watched carefully for consumer acceptance.

Mr. Green: I think creative banner advertising is the simplest and easiest way for advertisers to use the Internet. I've yet to find another advertising tactic that is as easy and effective to implement for both the advertiser and the provider. I'm sure there will continue to be a lot of experimenting to find more effective tactics, but none has stood out so far.

Mr. Olin: The only constant about the Internet is change. But it's still too early to predict the demise of banner ads. Banners provide a way for marketers to deliver messaging in the context of what consumers are doing on the Web, rather than as an interruption of that.

But there already are a number of promising interactive marketing models that don't rely on banners or on interactive advertising spending, per se. An example would be a diffusion model that leverages the viral nature of the Web, perhaps through thought-leader editorials, connections with chat group leaders, etc. One advantage for companies with brick-and-mortar presence is that we can use a wide range of offline means to invite consumers into online interactions.

Our recent introduction of Physique haircare products involved a carefully integrated online/offline marketing program, and the Physique site has become one of our most popular in a very short time.

Mr. Rooney: Banners have been the currency of the Internet for advertisers. But people are being conditioned to ignore banners, so they have to be better and more relevant. I think they will become more animated and interactive -- continued growth of richer banners. There will be more pop-ups, more targeting using key words to serve the right message to the right person at the right time.

No one is sure how the Internet will evolve, but this we know: When we unleash the creative people at our agencies, exciting things will happen.

Ms. Sneed: Banner advertising will continue to be around for the short term and potentially for the longer term. We think the broader question is what is the strategic role for banner ads, especially for brands with high awareness. Kraft has successfully used banners to provide immediacy and realtime information on a 24/7 basis.

For example, our banner ad for the recipe of the day continues to generate double-digit click-through and has for over a year. Banners also can deliver an invitation to consumers for a deeper, richer experience through value-added, personalized messages and services.

AA: What are the greatest opportunities offered by the Internet to your company and your industry as you look to the future? What are its greatest potential pitfalls?

Mr. Charno: Through the Internet we are increasing the accessibility and convenience of brick and mortar, allowing customers to shop us any way they wish. The Internet enhances relationships with existing customers, attracts new customers and actually helps close sales more quickly in physical stores.

One of the greatest challenges is to take full advantage of the strengths of both worlds. Also, an online business must truly understand the consumers' expectations and deliver an experience that meets or exceeds those expectations.

Mr. Flanagan: Our greatest short-term opportunity is to strengthen consumer loyalty and brand building through a more intimate and trusted consumer relationship. Longer term, we have the opportunity to work with our member banks to evolve the payments category to meet the new needs presented by the Internet and e-commerce growth.

The only pitfall is that we view the Internet as the silver bullet and let it lead, rather than support, our brand vision.

Mr. Green: There still is great opportunity for us to establish relationships with our customers based on the values of our brand. We've just scratched the surface. There are also other core competencies of McDonald's that could be very effectively marketed to consumers and other businesses through the Internet.

I personally like the idea that McDonald's is one of the only Internet sites that lets you really surf the world.

We have local restaurants in 27,000 locations in 119 countries around the world. Wouldn't it be great to be able to experience and understand other cultures and societies jus by visiting mcdonalds.com?

We will continue to spend time looking at ways to take our relationship with customers to a much higher level. Yes, we have to spend the time to innovate, but we don't want to concentrate too much on the Internet at the expense of making sure that we consistently deliver a great McDonald's experience to the 43 million people we touch every day.

Ms. Sneed: The opportunities include new methods of information dissemination, new channels of distribution and commerce, new products and services. The transformational power of the Internet provides us with the tools and options to magnify our communications to build even greater brand equity and brand loyalty.

The potential pitfalls can also be opportunities. For example, as control shifts to consumers, making them more demanding and selective, shifting economics and increasing price/value pressures, it provides brand new opportunities for us.

We also face the challenge of prioritizing the myriad opportunities, acting quickly and moving on the ones that offer us the biggest opportunity. You can't stand still in Internet time.

Mr. Olin: In many ways, the greatest opportunity lies in what we haven't thought of yet. We agree with the view that the Internet revolution is still in an early stage.

What interactive technology provides today -- but will provide to a much greater degree in the future -- is an ability to connect with consumers globally and yet individually. We need to learn how to leverage these connections throughout the process of developing and marketing our brands.

While our company has always been consumer-centric in its approach, the Internet represents an opportunity for dramatic improvement in how our brands meet consumer needs.

On the other hand, we need to avoid the temptation to simply reapply traditional offline marketing tactics in the online environment. There are many suppliers offering these opportunities, but these don't create significant new value for the consumer.

Mr. Rooney: Overall, marketing will get more effective and more efficient -- and more relevant -- to consumers by learning to use the Internet to target better. I expect we'll see more integration of marketing information within lifestyle and more targeted content sites.

The Internet's greatest opportunity is to be a terrific relationship marketing tool, which should allow us to conduct and maintain relevant, ongoing relationships with prospects, active shoppers and owners.

We can move past the single point of the sale and focus on maintaining the relationship and extending our value to the customer by providing financing and lease tracking services, offering accessories and roadside assistance programs, etc. That leads to owner loyalty and true advocacy -- a real added-value relation- ship.

But we have to maintain the integrity of the Internet. The Internet is a customer-driven environment. We have to address issues of privacy and respect for someone's time, provide accurate and relevant information and allow customers to maintain their control.

The Internet is still in its infancy; it's still evolving. We can't be complacent and assume we understand it all right now. We all have a lot to learn.

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