Chapter 17: Direct and Online Marketing: The New Marketing Model

The New Direct-Marketing Model

In previous chapters, we've discussed direct marketing as direct distribution, as marketing channels that contain no intermediaries. We've also included direct marketing as one element of the marketing communications mix—as an approach for communicating directly with consumers. In fact, direct marketing is both these things. Most companies still use direct marketing as a supplementary channel or medium for marketing their goods. Thus, Lexus markets mostly through mass-media advertising and its high-quality dealer network but also supplements these channels with direct marketing. Its direct marketing includes promotional videos and other materials mailed directly to prospective buyers and a Web page that provides consumers with information about various models, competitive comparisons, financing, and dealer locations. Similarly, Barnes & Noble conducts most of its business through brick-and-mortar bookstores but also markets directly through its Web site. Compaq Computer advertises heavily and makes most of its sales through retailers but also sells directly to consumers via telemarketing and the Internet. Most department stores sell the majority of their merchandise off their store shelves but also mail out catalogs.

However, for many companies today, direct marketing is much more than just a supplementary channel or medium. For these companies, direct marketing—especially in its newest transformation, Internet marketing and e-commerce—constitutes a new and complete model for doing business. "The Internet is not just another marketing channel; it's not just another advertising medium; it's not just a way to speed up transactions," says one strategist. "The Internet is the foundation for a new industrial order. [It] will change the relationship between consumers and producers in ways more profound than you can yet imagine."² This new direct model, suggests another analyst, is "revolutionizing the way we think about . . . how to construct relationships with suppliers and customers, how to create value for them, and how to make money in the process; in other words, [it's] revolutionizing marketing."³

	Consider an unlikely but successful example of direct Internet marketing.

Whereas most companies use direct marketing and the Internet as supplemental approaches, firms employing the direct model use it as the only approach. Some of these companies, such as Dell Computer, Amazon.com, and the so-called e-corporations (eBay, eToys, eTrade, and others), began as only direct marketers. Other companies—such as Cisco Systems, Charles Schwab, IBM, and many others—are rapidly transforming themselves into direct-marketing superstars.

As our chapter-opening story suggests, perhaps the company that best exemplifies this new direct marketing model is Dell Computer. On its Web page, Dell explains its direct model this way:

Dell's award-winning customer service, industry-leading growth, and financial performance continue to differentiate the company from competitors. At the heart of that performance is Dell's unique direct-to-customer business model. "Direct" refers to the company's relationships with its customers, from home-PC users to the world's largest corporations. There are no retailers or other resellers adding unnecessary time and cost, or diminishing Dell's understanding of customer expectations. Why are computer-systems customers and investors increasingly turning to Dell and its unique direct model? There are several reasons: (1) Price for Performance: By eliminating resellers, retailers, and other costly intermediary steps, together with the industry's most efficient procurement, manufacturing, and distribution process, Dell offers its customers more powerful, more richly configured systems for the money than competitors. (2) Customization: Every Dell system is built to order—customers get exactly, and only, what they want. (3) Service and Support: Dell uses knowledge gained from direct contact before and after the sale to provide award-winning, tailored customer service. (4) Latest Technology: Dell's efficient model means the latest relevant technology is introduced in its product lines much more quickly than through slow-moving indirect distribution channels. Inventory is turned over every 10 or fewer days, on average, keeping related costs low. (5) Superior Shareholder Value: During the past fiscal year, the value of Dell common stock more than doubled. In [the previous two years], Dell was the top-performing stock among the Standard & Poor's 500 and Nasdaq 100, and represented the top-performing U.S. stock on the Dow Jones World Stock Index.

Thus, Dell has built its entire approach to the marketplace around direct marketing. This direct model has proven highly successful, not just for Dell, but for the fast-growing number of other companies that employ it.

Many strategists have hailed direct marketing as the marketing model of the new millennium. They envision a day when all buying and selling will involve direct connections between companies and their customers. According to one account, the new model "will fundamentally change customers' expectations about convenience, speed, comparability, price, and service. Those new expectations will reverberate throughout the economy, affecting every business." Comparing the adoption of the Internet and other new direct-marketing technologies to the early days of the airplane, Amazon.com CEO Jeff Bezos says, "It's the Kitty Hawk era of electronic commerce." Even those offering more cautious predictions agree that the Internet and e-commerce will have a tremendous impact on future business strategies.

Benefits and Growth of Direct Marketing

Whether employed as a complete business model or as a supplement to a broader integrated marketing mix, direct marketing brings many benefits to both buyers and sellers. As a result, direct marketing is growing very rapidly.