Many companies are waking up to the potential of the interactive consumer market. Not only are the numbers of users of on-line and Internet services soaring, but the majority of people who are subscribing to these services tend to be young, well-educated, and richer than average. In short, they make particularly good marketing targets.

Interactive media is likely to revolutionize marketing for many consumer companies because it allows marketers to deliver real-time, personalized services and content, one consumer at a time. It is what we call digital marketing. Digital marketing leverages the unique and powerful characteristics of interactive media: it is addressable, meaning that each user can be identified and targeted separately; it allows for two-way interaction; services can be tailored for each individual customer; and purchases can be made and influenced on line. However, to capture the benefits of digital marketing, companies must integrate interactive media into their existing businesses and marketing programs. And that is difficult to achieve.

Most consumer companies are struggling to know what to do and how. The old models of marketing simply do not work in this new world, and as a result most of today’s digital marketing applications are uninspiring (as anybody who has ever been on the Internet can probably attest), falling far short of the potential of interactive media. Research is being conducted to define a new marketing model that will help build and evaluate digital marketing applications.

Types of digital marketing

Several broad types of attractive digital marketing opportunities already exist, and there is evidence that marketers who aggressively pursue one or more of these opportunities are starting to make profits.

First, marketers can use interactive media to provide better service at lower cost by delivering information about a product or service. UPS, for example, uses an Internet-based service to allow customers to track the whereabouts of their packages (Exhibit 1).

A second opportunity is to build relationships with on-line consumers. Interactive media can be used to identify attractive users or prospects (an automotive company can learn the names of interested car buyers and forward them to the closest dealer); it can enhance customer loyalty by providing extra services; and marketers can use what they learn about their consumers to cross-sell new products or services.

Third, marketers can use interactive media as a new channel. In 1995, Hot Hot Hot, a small company that produces sauces, generated some 30 percent of its revenue from sales through its Web site. And using interactive media, airlines are increasingly bypassing travel agents to sell tickets, thus saving significant commission costs. For example, United Connections, a disk-based service allowing travelers to make their own bookings, is estimated to save airlines up to $50 for a typical $500 round-trip fare.

Digital marketing is an attractive proposition for many more categories than is commonly assumed (Exhibit 2). We would argue that digital marketing can play an important role in any category in which it makes good business sense to build relationships one consumer at a time.

A new marketing model

The traditional 5P marketing model—price, product, promotion, package, place—is not particularly helpful to marketers seeking to capture the benefits of digital marketing. It assumes, for example, that communication is one way (from the marketer to the customer), when interactive media so clearly offers an opportunity to establish a dialog; it assumes a mass-market environment, when interactive media allows interaction with individual consumers.

The digital marketing model that has been developed is based on a pragmatic assessment of what seems to work, and what does not, in the interactive age. It is built around five apparent factors for success: (1) attracting users, (2) engaging users’ interest and participation, (3) retaining users and ensuring they return to an interactive media-based service, (4) learning about their preferences, and (5) relating back to them to provide the sort of customized interactions that represent the true "value bubble" of digital marketing (Exhibit 3). This last point is critical as in most cases it will require marketers to make their digital marketing initiative part of the existing business system. This presents important internal and external challenges, such as how to integrate the digital marketing initiatives with existing marketing programs or information systems, or how to manage potential channel conflicts with the salesforce or traditional distributors.

Each of the five success factors suggests a number of issues that marketers must address. For example, what are the most effective means to attract users to an interactive application? What is the role of branding? How should you choose an Internet address? What is the optimal "linking" strategy for a particular marketer? While the answers to many of these issues will be specific to a given marketer, research is beginning to identify the factors that allow companies to get more from their digital marketing efforts.

Over the next three to five years, digital marketing is likely to become an increasingly significant part of the consumer marketing landscape, at least in the US. For many marketers it will present formidable opportunities. For those who cannot keep pace, it might pose a serious threat. It is therefore imperative that marketers begin to think about the role of interactive media in their industry, and prepare to take appropriate action. Managing growth options