Self-regulation Key to E-retail Legitimacy - Column

Elissa Matulis Myers is president & CEO of the Electronic Retailing Association in Washington, a trade association for direct response television, radio and Internet marketing. She can be reached at (202) 289-6462 or emyers@retailing.org.

In an article in Wired magazine, executive editor Kevin Kelly wrote the following passage: "Major U.S. retailers refused to pay attention to TV home-shopping networks during the 1980s because the number of people watching and buying from them was initially so small and marginalized that it did not meet the established level of retail significance. Instead of heeding the new subtle threshold of networked economies, the retailers waited until the alarm of the tipping point sounded, which meant, by definition, that it was too late for them to cash in."

At the Electronic Retailing Association, as we appraise these bold developments in the retailing business, we don't think it's too late to cash in. A revolution in retailing is here, and it is now. According to the U.S. Bureau of the Census, retail sales in the U.S. in 1998 hit some $2.69 trillion. Direct response television was responsible for more than $90 billion of those sales, with another $30 billion-plus generated by Direct Response Radio. And although the facts and figures are still coming in, it is estimated that business to consumer Internet sales this past year will have reached close to $19 billion. That's a total of about $140 billion in electronic retail sales, or a little better than 5% of total retail sales. To say that I am excited about the potential of our industry is a gigantic understatement. But, that said, I'm also worried.

I am appalled by many of the shows that are currently airing as "direct response television." My levels of disquiet range from slight bemusement to sheer outrage at shows that run the gamut from silly to criminally deceptive. I saw a show earlier this week that drove me to the angry end of the spectrum. It didn't explicitly say so, but it clearly, unmistakably and repeatedly implied that the product that it sells cures cancer and that it does so better than any other medical technique available. Knowing the desperation and extreme vulnerability of individuals struggling with this affliction-and the desperation of those who love them- just thinking about this show brings tears to my eyes.

I knew when I took this job that I was jumping into an industry that not only had a wretched reputation, but, that, taken as a whole, had earned that reputation. I took the job because I believe that the medium, the art form, the tool that the direct response television industry is using, is the most exciting and powerful advertising medium in existence. And I think that what electronic retailers do and how they do it is going to transform the ways in which goods get bought and sold. But every time a direct response advertisement abuses a consumer, the whole medium is damaged.

We've made a commitment to building a reputable and vibrant industry. We are working to establish a strong self-regulatory process, with help from the Better Business Bureau, the Federal Trade Commission and others. Some days the progress seems slow, but if we move precipitously, we run the risk of losing the audience. A trade association isn't meant to regulate its members, but rather to help members succeed. And one important way to do that is to help them regulate themselves, out of enlightened self-interest. Our job is to get all of our members into the safety zone, and if we succeed in doing that, the members are better off and so is the public.

The payoff of legitimacy can be massive. In an era where stockholders want more accountability, direct response advertising shines. An advertiser has an immediate and absolute measure of the return on the advertising investment. Consumer behavior can be tracked quantitatively. The more that marketing expenses and media usage can be shown to move the bottom line, the better a marketer's lot within his company. And that tide lifts all boats.

Keep in mind, only a small fraction of what the average consumer buys can be classified as a necessity. The vast majority of our purchases are motivated by emotional response. And the real revolution in electronic retailing will occur when the emotional power of salesmanship and marketing can be harnessed to efficiency. There is no more powerful emotional medium than television and, for that reason, we believe the revolution in mass retail will take place not just on your computer but also on your TV The Electronic Retailing Association represents that dynamic and exciting seam, where TV and the Internet overlap.

Over the past few months there has been a flurry of publicity around the Internet and online sales. This past holiday season clearly illustrates that the Internet as a shopping mall has come of age. Similarly, pure Internet sales shine because of their efficiency. They allow the consumer to shop efficiently for product and for price. If you can reduce your product to a commodity, and can manage the economies of scale, then the Internet as it exists today may be the perfect sales platform. But most consumer purchases are made not analytically, but emotionally.

The biggest immediate step we need to see is the establishment of synergy between Internet retailing (the efficient cataloging, ordering and shipping of products) and the direct response television business (which can supply the emotional hook). As Internet shoppers become more familiar with the medium, it will take bigger and better and more innovative sites to satisfy their interest. Sites with audio and video streaming will become more common, and Internet retailers will have to incorporate that streaming to remain competitive. The flat model of an Internet site as a "catalog page" will disappoint, and the incorporation of persuasive video will become critical. The development of "good" TV is a highly refined and complex art form incorporating a whole skill set not typically in the resume of an average Internet site developer.

What's more, TV has the profound ability to tackle the No. I problem that Internet retailers face: driving traffic to the site. ERA members in the DRTV business buy 250,000 30-minute spots every month on broadcast TV affiliates and national cable networks. That's an astonishing 125,000 hours of television time every month. A single one-minute spot incorporated into each of those shows to drive consumers to related Internet sites represents over 2,000 hours of direct television exposure. A Web address-overlay represents 125,000 hours of time.

The sheer convenience of Internet-TV networking technology can bolster the efficiency of this medium exponentially. Simply enabling consumers to click, eliminating the task of making a phone call from the required consumer action, can drive a massive lift in sales. Worldgate, a leader in delivering the Internet to television via set-top cable boxes in partnership with MediaOne, reports that with the pay-per-view experience, if a consumer can click to order a movie, rather than having to make a phone call, response increases from about 30% of households per month to more than 100%.

More than simply efficient and compelling site design, competency in the management of back-end operations management is critical. The single biggest complaint that sullied the otherwise bright holidays for Internet sales this past year was that Internet retailers were overwhelmed by the volume, and hadn't adequately prepared, operationally, to handle the massive order volume and fulfillment. According to Stewart Siegel, senior vice president of Westchester, N.Y.-based IQVC, Internet sites depend on managing the erratic spikes of the direct response business, versus the old school of servicing a terrestrial middleman. "We are in the business of shipping packages to people, rather than pallets to stores," Siegel says.

Another critical competency of the Web TV experience is the ability to harvest the potential in a customer base: managing the upsell, continuity sales; data-mining, cross selling. The initial Internet "order" should be only the beginning of the business relationship. Successful Internet retailers will know how to tastefully exploit the opportunities and increase the profitable margins of a sale.

Perhaps even more than consumer interest and confidence, the growth in the percentage of electronic sales depends on the use of the Internet as a primary marketing and delivery mechanism by retailers themselves. As more and more retailers invest more attention to their online sales sites, the more such sites will attract the attention of the consumer. Think of a geographically isolated brick and mortar retail shop as compared to its competitor in a throbbing, complex mall. Shoppers want to shop where they have the widest variety of options available. Until recently, actually, a small number of retailers were for the most part engaged in limited experimental sites. That's changing quickly. While rapidly evolving technology is creating the possibility of this retail revolution, it still must overcome a lack of consumer confidence to realize its potential. If consumers are disappointed when their purchases arrive, they are less inclined to buy again.

Not only because it's the right thing to do, but because it's the smart thing to do, this industry needs to regulate itself. And because electronic retailing is quintessentially a global industry, crossing international boundaries easily through the magic of satellite and the Internet, an international standard of voluntary marketing practice is necessary.

COPYRIGHT 1999 BPI Communications, Inc.
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