Big brands circle the Net, warily

Now those moves are coming, and the pure-play Internet companies may never know what hit 'em.

A few hundred of those big-brand companies converged in California's Wine Country this week to hash over their Internet plans. The bottom line is, they now recognize the Web's impact on their bottom line.

"Everybody wants to get online and become part of e-commerce," said Perry Odak, president and CEO of Vermont's ice cream kingpin, Ben & Jerry's.

Like several hundred of his fellow executives, Odak was in attendance at the Hambrecht & Quist 7th Annual Branded Consumer Conference here to give and receive advice about using the Web to enhance existing brands.

This year's conference, subtitled "Growth Brands Meet the Internet," brought a mingling of new and old companies, all jockeying for mindshare in the digital economy.

"These companies have ranged from traditional brands like Ben & Jerry's, to companies that are emerging as 'hybrid commerce.' By that I mean Williams-Sonoma developing an Internet presence . . . all the way to pure-play dot.com companies who are developing strong brands in niche arenas," said Bonnie Tonneson, a Hambrecht & Quist analyst.

There is a trend toward traditional brand companies "dot.comming themselves" simply to move their stock prices to higher ground, said Planet U's CEO Bill Purcell. But many Fortune 500 companies are extremely serious players that have been eyeing the Internet intently. When they make their move, it will be well-calculated -- and potentially lethal to some of the Internet "pure plays" that have recently come on the scene, Purcell said.

Advantage brick and mortar
Planet U, an Internet startup in its own right, is an online coupon distributor that helps makers of consumer packaged-goods to harness the Web's direct marketing power. Planet U has business deals with about 5,000 stores, representing about 20 percent of the packaged-goods industry, Purcell said.

Established brick and mortar players have several distinct advantages in the e-commerce market, he said. For starters, their cost of acquiring a customer is often as low as nothing. Through service records, frequent shopper cards and other customer-affiliation programs that have been in place for years, traditional companies may enjoy a "zero user-acquisition cost," Purcell said. That compares with as much as the $30 to $60 per customer that many Internet startups face.

In addition to knowing its customers, what they want and how to reach them, Purcell said the major offline retail and manufacturing companies often figure in the top 3 percent of employers in any given state. That gives them tremendous clout in both government and organized labor. When they decide it's time to put pressure on their pure-play competitors, the Amazons and E-toys of the world may find themselves in very deep waters, Purcell said.

And the day of reckoning may be soon.

One of the barriers preventing many of the largest companies from paying full attention to the Internet will soon pass: Y2K. Major retail and manufacturing conglomerates have been racing against the clock to counteract the Year 2000 problem. But once that deadline passes, "They will be able to reallocate tremendous resources to their Internet initiatives," Purcell said.

Force won't cut it
However, succeeding on the Web will take more than blunt force, cautions Odak of Ben & Jerry's. Fortune 500 companies must make sure they have a message before they take it to the masses.

"All things being equal, consumers are going to buy from companies they feel ... good about doing business with. If you are just another way to commercially sell product -- and that's all you are as a company -- consumers will see through it. And they can see through it much more quickly today, especially with the Internet providing tremendous information."

Ben & Jerry's receives about 15,000 visits per day to its mostly non-commercial Web site. Odak says the site's aim isn't to add directly to the ice cream maker's socially conscious coffers, but to build touchy-feely relationships with consumers and keep them informed about the manufacturer's worldwide good deeds.

Ben & Jerry's Web effort is not altogether altruistic. It does offer "ICBM" (Ice Cream by Mail), but at $65 for five pints of ice cream, the online frozen goods are not selling like hotcakes. "That is not the focus of the site. The focus of the site is to communicate with our consumers in a very close-to-home, warm way," says Odak.

Not all the communications at the conference were warm and friendly. Many major retailers have held back from joining the e-commerce fray for fear of cannibalizing their brick and mortar storefronts.

You are on the menu
"The message is, if you don't eat your kids, someone's going to eat them for you," warned Carl Haller, a principal consultant with retail experts Management Horizons.

The online competition has spawned not only a flurry of new e-commerce initiatives, but several innovative approaches to traditional retailing. Case in point, the increase in "inventory-less stores" or showrooms, such as the Gateway Country retail chain spawned by the South Dakota PC maker. Gateway realized that it's direct sales effort over the Internet could not help the company expand its customer base among first-time users, Haller said.

"If you think about it, it's pretty hard to buy a computer online without a computer."