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Post of the Day
May 6, 1999

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Subject: Closed Loop Marketing
Author: tickletoe

I've been brainstorming about the promise of Closed Loop Marketing, and I think I'm beginning to see what it could mean to the right advertisers in the right industries. No doubt it will take some education on DoubleClick's part to get clients to understand its power. But once CLM gets into the right hands...then watch out! No doubt it's going to be a hot money maker for DoubleClick.

I think there are very few people who understand what Closed Loop is all about. In the annual report, DoubleClick describes it as a suite of products that give the advertiser "the ability to control targeting, delivery, measurement and analysis of their on-line campaigns on a real-time basis".

This unfortunately suggests that it only gives advertisers the ability to quickly evaluate their advertising campaign and then adjust the campaign quickly to take advantage of new information. Of course it's true as far as it goes. But it strikes me that the promise of Closed Loop goes much farther than this. In fact, I'll try to make the case here that it could change the economic structure of industries capable of using it well!

It's one thing to understand that net shoppers put more data into the hands of marketers. I think we all can grasp that one easily. What's not so readily apparent is (1) how the use of that data could affect such important items as the pricing of goods/services in an industry. Also, (2) the data gives a business a whole new way to maintain relationships with individual customers.

Let me try to illustrate the first point: Everyone knows that the airlines charge different customers different prices for the same product. I could get a seat on a plane for $200, and be sitting next to someone who paid $400. It happens all the time. It's usually called "price discrimination".

Now let's take look at a business closer to e-commerce: Remember when the press discovered that Victoria's Secret sent catalogs with different prices to different zip codes? Like the airlines, VS was practicing price discrimination, but in a crude way. They were just using zip codes and demographic data to determine who would be willing to pay more for the same product. In their defense, it's not much different than the shopkeeper who charges more in an affluent neighborhood, even if the customer could get the same product for less on the other side of town.

Given what Victoria's Secret did with a little demographic data, what could a savvy marketer do with all the information available through browser cookies? Here are some ideas I came up with:

1) Insurance. Identifying low-risk customer classes and offering them a competitive price. How does GEICO find safe drivers?

2) Credit Cards. Same idea.

3) High Tech. Selectively market new breakthrough products at high prices to the tech savvy before unleashing it on the masses at a lower price. (Dell is an early adopter of DART for Advertisers.)

The second point I want to make about Closed Loop Marketing is that it gives a business great freedom to manage customer relationships creatively.

Example. Let's suppose Amazon.com has a class of customers that used to place large orders more regularly. A large subset of those customers has Buy.com cookies on their browser. Perhaps these customers are defectors, who buy based on price. But you want their business back, because they buy a lot of product. What would you do? DoubleClick could serve them ads offering special volume discounts that no one else knows about.

Example. Let's suppose the Gap notices strong regional differences in the acceptance and use of its e-commerce site. Management decides to change the look of pages that get served in some regions. How do you let surfers know that there are changes and they should come back and take another look? DART can identify browsers in those geographical regions that have visited the site and not purchased anything. You could then run ads for a sale that only go to those browsers.

I'm sure that anyone who's read this far can probably come up with a lot of creative ideas on their own. The important thing is to try to rethink the way business is done, given the potential of the technology. It would be great if some others on this board would share some other examples. Once we all understand how this product is going to change the rules of e-commerce, we'll feel a lot better about owning this stock for the long term.

--Randy