Newegg Becomes a DR Geek1 Dec, 2011 By: Thomas Haire Response
"Direct response has to be a critical component to your marketing strategy,” says Bernard Luthi, senior vice president of marketing and Web management at Industry, Calif.-based Newegg Inc., the second-largest online-only retailer in the United States. “It gives you the opportunity to deliver a message and then to execute against the message that’s going to drive customers to your site. It should be a component regardless of whether you’re a brick-and-mortar player, or if you’re in the online space like we are, or if you’re selling products and services.”
Luthi joined the now 10-year-old company in late 2006, after executive stints at Ingram Micro and PC Mall. While he says that then he saw the company’s potential to rise in the online retail space (it now trails only Amazon.com in sales among online-only retailers), he knew the challenge would be in syncing Newegg’s marketing programs from start to finish — something the retailer had struggled to do earlier in its history.
In 2010, Newegg recorded approximately $2.5 billion in sales and the site boasts more than 16 million registered customers. Having grown to that size primarily via Web-only marketing, Luthi and his team made the decision to try television — specifically DRTV — in 2011 in an attempt to build its brand recognition and boost those numbers even higher.
“If you look at the trends in site traffic and customer acquisition, both spiked when we ran those TV ads,” Luthi says of the TV campaign that wrapped at the end of third-quarter 2011. The TV campaign worked hand-in-hand with Newegg’s online marketing messages — via E-mail, search optimization, banner ads and affiliate programs.
The step into television advertising was a big one for Luthi and the Newegg team. But, based on his background and that of the company, it’s no surprise that Luthi and his team decided that a bold new “branding” step would best be taken via DRTV.
Getting to the Consumer
Luthi’s work in the online and consumer electronics spaces started in 1994, when he joined Ingram Micro, the world’s leading global technology distributor. But his work in marketing started before that. “Prior to Ingram Micro, I worked for a number of small to midsized organizations in a marketing capacity,” he says, “and I even did some small business consulting.”
Joining Ingram Micro as a marketing manager, Luthi’s role centered on building relationships between the company’s end customers — typically resellers — and manufacturers. “I had the opportunity to work with a lot of the early launch dot-coms. Since Ingram was a distributor and had all of those major players as customers, I got a chance to work closely with the Buy.coms and the Amazons of the world,” he says. During his 10-year run, Luthi became director of product marketing and was responsible for a 65-person team.
Luthi was then recruited away from Ingram Micro into a new role as vice president of marketing for online and brick-and-mortar retailer PC Mall. “It was an opportunity to get from a distribution model to a spot where I was actually touching the end consumer,” he says of the move. “It was something I had really coveted. I was responsible for category management and merchandising, as well as marketing.”
But when Newegg came calling in 2006, Luthi saw even bigger and better opportunities. “I was familiar with Newegg,” he says. “When I was at PC Mall, I considered Newegg a formidable competitor. I liked the fact that it was an organization that was performing but still had an enormous amount of potential. It was an easy decision to come here.”
When he arrived, Newegg had a solid history as an online retailer, with some of the best customer service ratings in the industry. But, as Luthi says, there was still plenty of room for growth — especially considering the company’s key philosophies: fair pricing and unparalleled product selection with a commitment to on-time order fulfillment; empowering customers with detailed product information, peer reviews, expert opinions and how-to’s; and a priority on customer satisfaction and superior service.
“When I first came to Newegg, I was the vice president of merchandising, so I was responsible for how we interacted with our manufacturer partners in terms of getting their products on the website and into promotional vehicles,” Luthi says. “Over time, I picked up and launched a number of business units. I launched our initial foray into the B2B marketplace, and then, in 2008, I was responsible for the launch of our Canada business, which now has offices in Mississauga, Ontario. In that process, I picked up the marketing department and the Web management organization and then finally the customer service organization.”
Gaining that alignment was a crucial turning point for both Luthi and Newegg. “It put us in control of the entire customer interaction, from a standpoint of what we messaged externally to what we presented on the Website and finally to how we took care of that customer at the end result,” says Luthi, who was promoted to senior vice president in June.
Delivering Messages on Target
Newegg has been using online direct response methods since its debut in 2001, and under Luthi, those methods have been refined. “I have an opportunity to catch a consumer before he or she goes into a store,” he contends. “Increasingly, consumers are using online to do research and slowly becoming customers of the online experience rather than just looking at it from a research perspective. The ability to grab that customer the first time they come in to do research — to be able to pull them in to make a buy — gives us an opportunity that most of our brick-and-mortar partners aren’t taking advantage of.”
And direct response — at times, Luthi refers to it as “reach-out” marketing — is what drives consumers to Newegg. “Whether it’s E-mail, our affiliate base, our search terms, our online banners — in that initial reach out where I get someone to come into the store for the first time, I have to be accurate in the message I am delivering,” he adds.
Luthi is very clear in his belief that Newegg must always deliver what it promises. “If you’re going to sell the dream, you’ve got to be able to execute the dream,” he says. “I think that’s where a lot of direct response marketing falters. You’ve got to evaluate every message.”
Newegg is dedicated to the best customer service. “We’ve exceeded 3 million SKUs. We have a great selection of products. We have very aggressive and fair pricing. And we’ve got a customer experience — from how quickly we get the product out to our customers to how we react when a customer has a concern or an issue or something goes wrong,” Luthi contends.
This dedication to “delivering the dream” from the first marketing message to the post-purchase customer service has its roots in some of Luthi’s past experiences utilizing direct response. He’s had big wins and a few tough losses — but those losses gave Luthi the perspective he needed to build his own theory of how to reach consumers and turn them into customers.
“At a previous organization, we partnered with a game show,” Luthi says of one of those learning opportunities. “We decided it would be advantageous to provide our company’s name and recognition to the show. It was part of the awards for contestants. Our sales team beefed up knowing when those spots were going to run. The calls didn’t come. It wasn’t the right message. It wasn’t to the right audience.”
Targeting and delivery haven’t been a problem at Newegg. But, Luthi shares, not every program has worked perfectly.
“If you go back a couple years, pre-black Friday, we did some aggressive notebook sales just before Black Friday,” Luthi says. “We had an enormous spike of traffic and, unfortunately, we had some issues with our website. People were putting product into their shopping cart, hitting buy, and entering their payment information. But by the time they went through that process, the product had sold out. The message was great, the ability to drive people to the site was good, but we failed to execute correctly.”
The lesson, once again, Luthi says: “No matter how good your marketing program, message and targeting is, if you can’t execute, you can fail. The problem with failing at that level is that those customers are hard to bring back. We did a good job of handling it by reaching out to the customers, securing as much product as we could of a very similar system and offering those to our customers to make good.”
Driving Brand with DRTV
Though Newegg’s online marketing has done exceedingly well for the company, Luthi and his team wanted to push the retailer’s brand to greater heights in 2011. “We had a lot of the pieces put together as a company to really put some effort and funding behind a more traditionally based brand program,” Luthi says.
His confidence in his team was one reason he felt ready. “I would take our marketing department and put it against any marketing department in our industry and say that we rival them,” Luthi contends.
However, Luthi knew that moving into television advertising was going to be a completely different animal. Focusing on a pair of slogans — “Once You Know, You Newegg.”® and “Take It From a Geek.”™ — the Newegg team looked deep into its customer base and general consumer research.
“We asked, ‘If this customer has the propensity to buy from us, how do we reach them? What’s the message we use to attract them? How do we convert them into lifetime customers?’” Luthi says. Armed with answers to those questions, the company’s double-barreled branding/direct response campaign launched in May.
“We ran one 30-second commercial that was sort of mimicking the in-store or in-office experience of buying or getting advice on a product. And then we used a 30-second DRTV spot featuring one of our current customers providing a live review of what it was like to buy from Newegg, We saw an immediate spike in traffic — double-digit growth in traffic and customer acquisition,” Luthi says.
One of the keys to understanding those spikes was understanding how to measure DRTV — no simple feat for marketers accustomed to the “measure-every-click” world of online DR. “You can measure every customer that comes through those online channels,” Luthi says. “With TV or any offline media, even though you can do some tracking with codes, you’re still at the mercy of ‘Which spot were they seeing?’ However, we saw a direct correlation between spikes and when those commercials were running — by the day, by the week, you could see the traffic pull up.”
But it wasn’t just the two TV spots that stood alone. “The E-mails that we used so effectively on a day-in and day-out basis or the limited time offers also helped immensely,” Luthi says. “We send out approximately 14 million E-mails per week. We have an open rate of more than 40 percent and a click-through rate of more than 20 percent.”
Two agency partners deserve much credit for Newegg’s first successful foray into response branding via DRTV. “Goodness Manufacturing was the creative arm, and KSL Media was the media buying arm,” Luthi says. “We worked with them to create the glossier TV branding commercial and the more grassroots DRTV spot. The results exceeded our expectations — and we have pretty aggressive goals.”
Prior to this effort, Luthi contends that Newegg’s marketing department handled almost all of the company’s campaigns internally. “For us to go outside of Newegg to bring in agencies was a little foreign to the company,” he says. “It was important for us as marketing department to find customers, but it was also very important to show the organization that there were viable partners externally that we could bring in and work with.”
Early in the process, Luthi and his team decided they wanted a pair of specialists — one agency focused on creative and conceptual ideas, and another focused on media buying.
“Goodness sold us on their ability to be innovative and quickly understand the message we wanted to get across,” he says. “They rapidly identified that we had this incredible gift of having 2.2 million reviews on our site written by Newegg customers, advocates or those who are just interested in the products we sell. They are very honest, very unbiased reviews of the products they buy or use.”
Those reviews are screened by Newegg mainly only to prevent vulgar language. “Goodness identified that we could use this as a core strength to our marketing — come to the site and get advice from the experts,” Luthi says. “That was the genesis of ‘Take It From a Geek.’”
When it came to choosing a Newegg customer for the DRTV spot, Luthi also credits the agency for keeping things simple. “We pulled a list of customers and made some quick phone calls,” he adds. “We’ve got a pretty loyal customer base, so that when you get a person on the phone who is enthusiastic and passionate about Newegg, it’s a pretty easy pick.”
The team at Goodness brought KSL Media to the table — and the media agency turned out to be a perfect fit.
Luthi explains, “We had done a pretty intensive study of our customers, using Acxiom, a marketing database company. We had created 70 clusters of customers, and narrowed it down to 13, then 11, then six. It was a year’s project — understanding not demographics but also psychographics. KSL was expert in that same sort of analytics. When we first met with them, we showed them what we had done, and they were excited because they’d used the same platforms.”
Calling data integration between Newegg and KSL “seamless,” Luthi continues, “They were very quick to be able to recommend specific placements for us — TV shows, websites. It was one of those relationships where they very quickly understood what we were trying to do, and they were able to target with a high level of efficiency.”
Senior Vice President of Marketing and Web Management,
Newegg Inc., Industry, Calif.
Hometown: Rosemead, Calif.
Resides: Arcadia, Calif.
Family: Wife, Rose, and two sons, Joshua and Jacob
Education: B.A., business administration, California State University Los Angeles
Defining Moment: “I’d been promoted to director at Ingram Micro, and I was struggling to launch a particular series of programs. I was sitting across from my new boss, and I was probably taking a very passive approach to solving a problem. I stated my case to her and was looking for her to give me a ‘Here’s what you need to do’ speech. Instead, she said, ‘You can lead, you can follow, or you can get out of the way.’ She delivered it succinctly and passionately, but not angrily. I was so angry at her response, but it did exactly what she thought it was going to do — it created a sense of urgency in me, and removed that passiveness from my approach. That’s where I took on a much greater role in climbing out on the limb and saying, ‘This is what we’re going to do,’ taking responsibility for it, and becoming a more assertive leader.”
Greatest Career Accomplishment: “At Newegg, we built a seamless start-to-finish customer experience. Previously, Newegg had different leadership roles at every critical component of the company, and they didn’t always mesh. We’ve gotten all of those teams on the same page. The external message looks like what the website is delivering. The website looks like what we’re promoting. And, ultimately, the customer service organization flows all the way through that entire process. That’s reflecting and being reflected in the fact that our traffic is up in double digits and our customer acquisition is continuing to increase. The lifetime value of our customers is increasing. I am most proud of the current team that we have in marketing at Newegg. I can look around at who works for me and know that I have a team of people that I have nothing but the utmost respect for and confidence in.”