The caution flag is flying in the marketplace for sponsorships as dot-coms rethink their offline events and promotions strategies.
Money that poured into the coffers of sports- and cause-marketing sponsorships in the last year has fallen off sharply in the past few months, leaving some organizations reeling.
Businesses also have slammed the brakes on a number of dot-com mobile marketing tours; last year, the roads were laden with them.
Examples include a splashy, six-city mobile marketing tour by Garden.com. The tour was conceived last year and hit the road this spring--as Garden.com's stock tanked. There are no plans for a follow-up tour. Garden.com's stock traded in early August at $1.75, off 93% from its post-IPO peak last fall.
CASH UP FRONT
Garden.com is just one of many sites that lavishly spent money on tours, events and sponsorships in the last year. Garden.com also is among the dot-coms that could run out of money in the next year unless they get more funding, according to a May report by Goldman, Sachs & Co. analyst Anthony Noto.
Events organizers now are wary of dot-com sponsors, especially those that agreed to back title sponsorships and are coming up short on funds, say sponsorship industry insiders.
One example is HomePoint.-com, a business-to-business site for the home furnishings industry, which last year announced it paid $1.5 million for a multiyear title sponsorship of Nashville's college football "Music City Bowl" game. HomePoint backed out of the deal last month, leaving organizers scrambling for a new title sponsor for the next game.
"Sports leagues, teams and cause-marketing organizations have become extremely cautious about doing sponsorship deals with dot-coms this year, whereas 12 months ago most of them were leaping at the opportunity," says Sean Brenner, managing editor of IEG Sponsorship Report, which tracks sponsorship spending.
Sponsorship properties are now doing much more research on dot-coms before agreeing to deals. Most are demanding the majority of the cash up front vs. accepting 10% of the payment, which was common last year, Mr. Brenner says.
Dot-com sponsorships surged from $5 million in 1998 to more than $40 million in 1999, IEG estimated. Although the consultancy has not recalculated figures for this year, Mr. Brenner says dot-com spending has "tapered significantly."
A year ago, sports organizations were swamped with calls from dot-coms seeking high-profile sponsorship opportunities for the fall `99 football season. There was talk of several dot-coms becoming title sponsors of sports stadiums and arenas around the U.S., says Dean Bonham, chairman of the Denver-based Bonham Group, a consultancy specializing in naming rights for facilities.
"A number of dot-com companies were looking into naming-rights opportunities a few months ago, and there is much less enthusiasm for those deals now," he says.
`DOLLARS WORK SMARTER'
The only high-profile stadium with a dot-com moniker remains the National Football League's Baltimore Ravens stadium, dubbed PSINet Stadium.
Marketing consultants say the slowdown in events, promotions and sponsorships by dot-coms is a healthy example of companies looking for more efficient ways of promoting their brands.
A high-profile publicity caper by online gift site RedEnvelope won't be repeated. Last year, the company paid to have several double-decker buses wrapped in red paper troll the streets of major cities, giving free rides to shoppers. One even appeared at halftime at a Stanford University football game.
RedEnvelope says it has retooled its marketing strategy this year. It's departed from its pure online shopping site by introducing a catalog-based direct mail program. Offline promotions are limited to a few airport kiosks.
"Our marketing is now focused more on the core business plan. We're looking for more efficient vehicles and ways to make our dollars work smarter," says Lesa Musatto, VP-marketing and business development for RedEnvelope.
John Underwood, president-CEO of online branding consultancy ClickThings, New York, predicts a dramatic retrenchment in spending on events and promotions by smaller and lesser-known dot-coms as many run into trouble and consolidate or fold.
However, he says, offline promotions remain a powerful strategical tool for strong, well-recognized dot-coms, provided efforts are highly targeted and measurable.
"Promotions that drive people to a Web site can be exceptionally effective if done right, and they are essential for rising above the online clutter," Mr. Underwood says.
Many sites with strong financial backing are still spending heavily on offline events and promotions, which they say are highly effective.
MASTER OF PROMOTIONS
General Electric Co.'s GE Financial Network "lost" 5,000 wallets around the U.S., inviting the finders to go to its Web site to see if they have won a range of prizes described inside the wallets including two $100,000 GE Funds investment accounts.
The monthlong stunt, which ended Aug. 6, generated "significant increases in traffic to our site," says Chris Matthews, senior VP of e-marketing for GE Financial Network, which launched in February.
Yahoo! claims to be a master of cost-effective promotions that get results. This spring the company operated a storefront in Manhattan's Rockefeller Center where the "world's laziest shopper" was on display for a month shopping online in a La-Z-Boy recliner; each day he purchased merchandise from some of the 11,000 merchants featured in Yahoo! Shopping.
Thousands of locals and tourists visited the storefront to shop online. Although Yahoo! would not disclose the promotion's cost, it said it was one of its most successful efforts to date.
`CREATIVITY AND SURPRISE'
This fall, Yahoo! plans a plethora of additional publicity promotions, including a new fleet of Yahoo!-branded taxis to an undisclosed city. It unleashed a fleet of 10 cabs equipped with free Internet access in San Francisco last year.
"Our goal is to use creativity and surprise in our offline promotions so we get a lot of mileage for our money," says Luann Calvert, a Yahoo! brand marketing executive. "We have seen measurable results from these promotions, and our return on investment is very favorable."
While others cut back, Yahoo! is milking promotions for all they're worth. It's the sponsor of an "interactive" cow in this summer's art exhibit of cows in Manhattan. Passersby can check their e-mail for free.
Copyright August 2000, Crain Communications Inc.