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Welcome to the Marketing Evolution...Marketing Today (tm)

 

Permission Marketing
by Seth Godin


CHAPTER FOUR

GETTING STARTED-FOCUS ON SHARE OF CUSTOMER, NOT MARKET SHARE.
FIRE 70% OF YOUR CUSTOMERS AND WATCH YOUR PROFITS GO UP!

Five years ago, Don Peppers and Martha Rogers wrote a book that changed the marketing landscape forever. Titled The One to One Future, they proposed a radical rethinking of the way marketers treat their customers.

Peppers and Rogers presented a manifesto for how companies can increase their profits by selling more things to fewer customers. In other words, they believe it's wiser to focus more on increasing sales to a smaller percentage of your existing customers than it is to find new ones.

The thinking behind their book is straightforward and it led directly to the agenda behind Permission Marketing: Getting a new customer is expensive. It takes money to get his attention and it takes continuing effort to educate him (interruption marketing is expensive, and so is the process of winning a customer's trust). It's also expensive for the customer, who has to spend time evaluating and learning about the features and benefits of a product.

So, argue the authors, instead of focusing on how to maximize the number of new customers, the focus should be on keeping customers longer and getting far more money from each of them over time.

It's back to the old days, when merchants had a limited supply of customers and worked to get the maximum revenue from each one. Except now, with technology, companies can combine this old world thinking with the ability to dramatically grow their customer base at the same time.

If AT&T spends hundreds of dollars to get a new long distance customer, and that customer pays just $20 per month for AT&T's services, then they have to be figuring out other ways to generate revenue through their interaction with that customer, not spending all their energy getting yet another new customer.

By selling cellular phone services, home security services and an increasing array of other items, AT&T can recoup the expense of obtaining these customers.

Levi's has built the single largest brand of women's jeans in the country. And they've done so without having any jeans in the store.

Instead, women have their measurements taken by a trained specialist, who sends them to a computerized factory. There, a semi-custom pair of jeans is made to order.

The shopper gets custom fit for a fraction of the cost.

Levi's has a huge savings in inventory risk and advertising costs. And best of all, once a customer has given her measurements to Levi's, once she's endured the hassle of all that measurement-taking, once she's worn a pair of custom jeans, would she even consider switching brands to save a few dollars?

To elaborate a little more on the one to one marketing approach, Peppers and Rogers would like you to focus on four things when selling to customers:

1. Increase your "share of wallet." Figure out which needs you can satisfy, then use the knowledge you have, and the trust you've built, to make that additional sale.

2. Increase the durability of customer relationships. Invest money in customer retention, because it's a small fraction of the cost of customer acquisition.

3. Increase your product offerings to customers.

By being customer-focused instead of retail-focused, or factory-focused, a manufacturer or merchant can widely increase its offerings, thus increasing share of wallet.

4. Create an interactive relationship that leads to

meeting more customer needs. It's a cycle. By constantly incenting the consumer to give more information, the marketer can offer more products.

This series of techniques isn't easy, nor is it free. If it was, everyone would do it. It requires a huge investment in scaleable technology, along with the focus and commitment to do it right. It puts a lot more pressure on your organization, as well, because as each customer becomes worth more, the cost of losing one increases.

USE PERMISSION EARLY IN THE MARKETING PROCESS

Don Peppers and Martha Rogers opened the eyes of many marketers and got them to look downstream after the first sale was made. By recognizing the huge cost of getting a first sale and the very high lifetime value of a customer, the one to one philosophy can dramatically increase profitability.

Permission Marketing demands that in addition to looking downstream, marketers now look upstream. The challenge facing most companies is that they notice people too late.

The process of getting new customers needs to be reengineered. Like caterpillars turning into butterflies, prospects go through a five step cycle:

Strangers

Friends

Customers

Loyal Customers

Former Customers

Today, most marketers don't notice, track or interact with people until they are a customer. And some don't even pay close attention until the consumer becomes a loyal customer. Unfortunately, a few don't notice their customers until they become disgruntled former customers.

It's essential, given the high cost of talking to strangers, that marketers move their focus of attention up the stream. They need to have a process in place that nurtures total strangers from the moment they first indicate an interest.

At that moment, a suite of marketing messages must begin to be applied. The goal is to teach, cajole and encourage this stranger to become a friend. And once she becomes a friend, to apply enough focused marketing to create a customer.

Do you know how your company does this now? Most marketers have no idea. They rely on a hodgepodge of randomly delivered interruptions and hope that from this primordial soup will rise a fully formed customer.

Computers and Permission Marketing can change that.

You can now choose who you reach. When you reach them. The order of the messages. The benefits offered.

You can create dozens or even hundreds of paths for an individual to follow from the first contact until the highest level of permission is granted.

If the marketing messages you send are anticipated, relevant and personal, they will cut through the clutter and increase the prospect's knowledge of the benefits you offer. An organization that is focused on this process early on will always outperform one that isn't.

THE NATURAL SYNERGY OF PERMISSION AND ONE TO ONE MARKETING

As you've seen, Permission Marketing is the cousin of one to one marketing. Where Peppers and Rogers begin the process with the first sale, Permission begins the process with the very first contact.

Permission Marketing works to turn strangers into friends and then friends into customers. One to one marketing uses the very same techniques, incorporating knowledge, frequency, and relevance, to turn customers into supercustomers. One to one doesn't compete with Permission Marketing. It's part of the very same continuum. The one to one marketer takes the permission that's been granted after someone becomes a customer and uses that permission to create even better customers.

The better the permission, the more profit created.

--------------------------------

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The one to one marketer works to change his focus from finding as many new customers as he can to extracting the maximum value from each customer.

The Permission marketer works to change his focus from finding as many prospects as he can to converting the largest number of prospects into customers. And then he leverages the permission on an ongoing basis.

---------------------------------

You can't build a one to one relationship with a customer unless the customer explicitly agrees to the process.

Everything from discovering a shoe size to building mutually dependent computer systems with a major vendor requires an overt agreement from both sides.

By measuring the depth of permission you have with each customer (one may allow you to send merchandise "on approval", another may let you call them when a new product comes in), you can begin to track the benefits of your investment in Permission Marketing. By focusing on how deep your permission is with your existing customers, you can begin to recognize the value of your permission asset.

Frank Britt and Tim DeMello run a company called Streamline that is at the vanguard of the junction between Permission Marketing and one to one marketing.

Streamline capitalizes on the technologies and social shifts that are changing our lives, and they are building a fantastic business that serves as a model for the future.

They offer to save customers hours and hours of time each week by doing virtually all of their routine errands.

A call to Streamline leads to a customized sales pitch by a trained Streamline sales rep. And in a surprisingly high number of cases, that sales pitch leads to a first sale. Then Streamline comes to your house and installs a large wooden box and a refrigerator in your garage. Next, they ask to come into your house so they can scan the UPC codes on every item in your fridge and food cabinet. They take down the name of your pharmacy and where you like your clothes dry cleaned. Talk about Permission!

Then, using the Web, you log on each week and tell Streamline what you need. You fill out a pre-automated shopping list. They pick up dry cleaning and prescriptions and photos as well. Then, while you're at work, they do all your errands, pick up what you need, and drop it off at your house.

Streamline does this for about $30 a month. And the more services they offer, the more permission they get from customers. In a single year, the average customer places 47 orders and spends more than $5,000 with them.

Multiply that by millions of potential customers and you see the size of the opportunity! As the company gains more permission, it's not hard to imagine them branching into house cleaning, house painting, gardening and a huge range of home care and home delivery services.

By "owning" permission to market new services, and by using one to one techniques to know and remember your preferences, Streamline is creating a mega-business for the next century. They're building an asset that has nothing to do with brand and everything to do with their relationship with you.

Will Streamline find competition? Without a doubt. But once they've established permission with their customers, it will be extremely difficult for a competitor to dislodge them.

A more familiar example is Amazon.com. Ask most sentient humans and they'll tell you Amazon is a bookstore on the Web. Analysts will tell you that they're one of the biggest internet-first brands.

Yet if Amazon is determined to be a bookseller, they've got big troubles. First, they pay far more for books than Barnes & Noble because of their smaller scale. But even if they overcome that disadvantage, other online sellers, like the new online service from Bertelsmann (the largest publisher of books in the world), will doubtless be able to compete on price.

So why is Amazon so busy building its customer base, losing money on each customer and trying to make it up in volume? Why does their prospectus claim that they're losing money and see no end in sight for the losses?

Amazon appears to be building a permission asset, not a brand asset. Amazon has overt permission to track which books you buy and which books you browse. They have explicit permission to send you promotional e-mail messages. They are building special interest communities in which Amazon and its customers will be able to talk with each other about specific genres of books. Why?

Where's the payoff?

The payoff comes the day Amazon decides to publish books. This is where the profit lies and where Amazon is best able to leverage their permission asset.

A book costs about $2 to print and $20 in the store. A huge gulf! But most of that money disappears in advertising, shipping and especially in the shredding of unsold books. What if you could remove all of those?

Imagine that Amazon.com sends a note to each of the one million people who bought a mystery novel from their site last year. (It costs them nothing to do that, of course, since e-mail is free). In the note, they ask if you'd like to buy the next Robert B. Parker novel, a Spenser mystery, which will be available exclusively from Amazon. And let's say a third of those customers respond and say, "sure."

Now, Amazon can make the following extraordinary offer to Robert B. Parker. "Write the book. We'll edit it and typeset it and ship it directly to the 333,000 people who have pre-ordered it. We'll deduct our costs and still have a million dollars left over to pay you."

That's a lot of money for a mystery novel. And yet Amazon still will earn more than 4 million dollars in profit from just one book.

Multiply that scenario by 100 or 1,000 books a year.

Using permission, Amazon can fundamentally reconfigure the entire book industry, disintermediating and combining every step of the chain until there are only two: the writer and Amazon.

That's the way to visualize the power of Permission.

Technology enables marketers to have a perfect memory, and provides them with the ability to customize correspondence on the fly and deliver it for free via e-mail. Combine that with a database of customers who expect to receive marketing messages from you because they gave you their permission, and most industry book chains should begin to see a looming threat.

By moving strangers up the permission ladder, from that very first interruption until the moment when the consumer gives you the permission to actually purchase products on their behalf, marketers are able to optimize their entire marketing process. The results can be fantastic. By dramatically increasing the measurability and efficiency of your marketing system, your company can multiply its profits.

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Traditional sales and marketing involves increasing market share, which means selling as much of your product as you can to as many customers as possible.

One to one marketing involves driving for share of customer, which means ensuring that each individual customer who buys your product buys more product, buys only your brand, and is happy using your product instead of another to solve their problem. The true, current value of any one customer is a function of the customer's future purchases, across all the product lines, brands and services offered by you.

------------------------

How firing 70% of your customers might help your business

When you have a constant stream of strangers walking through the door as a result of Interruption Marketing, you don't have to worry as much about protecting your existing customers. Even though it's more profitable to cater to those existing customers, many marketers are uncomfortable with the shift in power it portends.

An online e-commerce story makes that lesson very clear.

A consumer ordered several items from a small merchant selling CDs online. The consumer's credit card was quickly charged, but after three weeks, nothing had arrived.

The consumer sent a polite note to the customer service e-mail address. No response. Another note. No response.

So, after four weeks, the consumer wrote to the President of the company.

He wrote back the next day. His note consisted of just three words: "Get a Life."

Did he burn a customer? Of course. That was his intention. But what he hasn't learned yet (and soon will, or he'll be gone) is that the act of dismissing that customer didn't cost him just one sale. It cost him the loss of permission to sell products to this woman for the rest of her life.

Think about it. He had her in a dialogue. He had her credit card number. He knows what CDs she likes. If he had treated that permission with respect, it could have easily led to $1,000 or $5,000 worth of CD sales over the lifetime of the relationship. But because the merchant was a physical retailer, accustomed to the anonymity and unpredictability of walk-in trade, he figured he was losing a $10 sale. Big mistake.

Compare this to the true story of a similar customer at a similar merchant, also online. This time, the complaint about slow delivery ended when it reached the customer service desk. The customer got a response within five minutes. The response was factual (the CD was misaddressed and had been returned) but the letter was apologetic. AND the e-mail announced that to make up for the inconvenience, another CD by the same artist was going to be sent along for free.

Which merchant is most likely to earn a few thousand more dollars in incremental business due to the level of Permission earned? Customer service has always mattered. But now that power has shifted to the consumer, it matters a great deal more.

Based on these stories, however, there's no way to know what type of customer, or future revenues, she represented. But given our vastly improved ability to "know" customers at an individual level, it's important to recognize that some customers carry a negative value, and it's sometimes wise to get rid of them. The reward comes to the marketer in the form of an increased ability to concentrate on nurturing the customers who represent the quality permission candidates for future business.

This means that sometimes you have to endure the entrepreneur's nightmare--you must fire a customer. In view of optimizing customer service, sometimes that's what it takes. A customer that distracts you, or one that cherry picks your line of products, or one that requires a disproportionate percentage of your company's time and resources, for example, is going to cost you money. Of course it matters how you fire a customer, too, and telling a customer with a valid complaint to "get a life" obviously falls short of wisdom.

START BY GETTING THE CUSTOMER TO RAISE HIS HAND

Not surprisingly, the first question most interruption marketers ask when they hear about Permission Marketing is, "How do you get people to sign up?"

Because they were trained in the art of getting momentary reactions from large numbers of people, this part of the process is the most familiar to them.

Permission Marketing almost always follows the same simple steps. Each campaign is very different, but the concepts behind each step remain the same. Simply stated, you interrupt the customer with a message designed to get them to raise their hand. That's the way they volunteer, or say "yes" to begin a rewarding exchange of information accomplished over time, which builds trust that you can leverage into a sales relationship.

But the first step is still to interrupt the consumer. That's one reason there will always be socially acceptable interruption marketing media. We need to get that initial attention.

Sometimes you're lucky enough that a stranger comes to you of his own accord. There will always be a few people who straggle onto your web site, for example, or potential customers who call your toll free number or walk into your store. These are the freebies. Most of the time, however, you've got to use the tried and true interruptive techniques to reach large numbers of people.

Using measurable techniques, marketers can choose television, radio, print, direct mail or electronic media to grab the attention of consumers. But without some way to grab the attention of a stranger, the permission process never starts.

Joanne Kates is the third generation owner of Camp Arowhon, the oldest coed summer camp in North America. With a 70 year history, great word of mouth and a solid backlist, acquiring new customers is not her highest priority. Nonetheless, Arowhon needs a process to turn strangers into campers.

The camp uses permission marketing to accomplish this.

The first step is to advertise at camp fairs and in magazines that feature groups of ads from summer camps. But unlike virtually all of her competitors, Joanne isn't trying to sell her camp. She knows that no one chooses a summer camp for their children on the basis of a two-inch square black and white advertisement.

Instead, her only goal in the ad, and at the trade show, is to get permission to send a video and a brochure. The ad sells the brochure, not the camp. Call the camp's number and her staff will immediately qualify your interest and then send a video (perhaps the best produced camp video in the market) and the brochure (also extremely well-done.)

The only goal of the video is to get permission to have a personal meeting. It doesn't sell the camp. It sells the meeting.

Now, fully qualified, and having seen the testimonials, the photographs, the facilities and the happy campers, the family is ready to be sold on the camp. And that's done in person.

Once a camper attends for a summer, odds are that he or she will stay for more summers and bring a brother or sister as well. Which makes the sale worth nearly $20,000. By using Permission Marketing, Arowhon is able to make these significant step-by-step sales, with a very high efficiency.

At each step, the only goal of the next step is to expand permission. She interrupts to get permission to send a video using a small print ad, she uses the video to get permission to visit, she uses the visit to get permission to sell one summer and she uses the summer to sell six more.

By focusing media on getting permission instead of making the ultimate sale, marketers are able to get far more out of their expenditures. The response rate to a free sample or an affinity program or a birthday club might be five or ten times the response rate of an ad asking for a sale.

This is a critical distinction. Step two in the process, after the consumer has been interrupted, is to make an offer and ask for volunteers. The offer should provide selfish motivation and offer virtually no downside.

An interrupted consumer is in no hurry to send you money or promise to invest a lot of time. An interrupted consumer won't fill out a long demographic form or get in his car to drive down to your automall. The less you ask of the consumer and the bigger the 'bribe', the more likely the consumer will give you permission. The permission won't be broad or deep. But it will guarantee that your next interaction will be significantly more impactful.

When Hooked on Phonics ran nationwide radio advertising that helped them grow from zero to a hundred million dollars in revenue, they didn't try to sell anything on the radio. They didn't even mention the price. They sold the benefits by asking potential customers to call (800) ABCDEFG and get free information on how to help your kids. Free information. Help your kids. No downside. No money. This offer enticed millions of concerned parents to give permission to learn more about the product.

Hooked on Phonics gets far more attention from a completely qualified audience by using this two step approach. Imagine how much harder it would have been for them to generate the same level of sales if they had tried to make the sale on the radio.

In order to make the marketing messages you send relevant and personal you need to get some data. Permission marketers are totally obvious about their objectives with the consumer. They make it crystal clear what they will be doing with the data they collect, and exactly why it's beneficial to the consumer to give this data.

Consumers who visit a web site are sometimes asked to give their phone number. But what's in it for the consumer? Without a specific reason for the consumer to behave, without a reward or a benefit, the overwhelmed consumer will refuse.

The reward you offer a consumer must be obvious and simple. To dramatize the importance of this stage, to make it crasser than it needs to be, I call it bait. No one would argue that when you go fishing, you ought to use the most effective, most obvious bait you can find. The same is true when you try to attract consumers.

After you've interrupted, engaged in a bargain, and exchanged data with the consumer, now you need to teach, and eventually leverage the permission you've obtained.

If you're in a medium where frequency is cheap (like the Net), take your time. Build trust through frequency.

Patiently tell your story to each consumer who is willing to participate in the exchange.

Be personal. Be relevant. Be specific. And always be anticipated. Anticipation, of course, is even better than expectation. Without surprising the consumer, gradually raise the level of permission you extract.

Then, by constantly raising the magnitude of rewards you offer the prospect, you can fight attrition and compression and keep them interested (compression is the tendency of rewards to become less effective with repetition). By continuing the dialogue, you can teach the consumer until a stranger becomes a friend and then a friend becomes a customer.

Of course, the process doesn't end with the first sale. It just becomes one to one marketing. Using the permission already granted, you then work hard to expand the share of wallet and build a permission asset that is ever deeper and more powerful.

Getting the customer to raise their hand takes planning and capital Interrupting strangers and getting their attention in the first place is the glamorous part of marketing. Marketers and their advertising agencies live and die by the sizzle they create. They invest millions of dollars in a one minute commercial, just to maximize the effectiveness of the execution.

A copywriter can make his career with a clever ad. In fact, a thirty year old clever campaign for the Volkswagen came back from the dead to generate millions of dollars in new Beetle sales for VW in 1998.

At the same time that interruption marketers are arming themselves with these killer executions, they're backing them with huge media budgets. Media budgets that often dwarf the cost of inventing or even manufacturing the product in the first place.

All of this time and money is spent with one goal in mind: interrupt people. If they remember the interruption the next day, even better. An interruption marketer who does a good job and boosts their direct mail response rate a tenth of a percent, or boosts morning-after recall a bit, is a hero. The entire point of the ad is to do that.

Wouldn't it be great if we could eliminate this incredibly wasteful part of the process? Unfortunately, Permission Marketers cannot ignore the interruption part of the process. They can't walk away from the cost of getting strangers to raise their hands. But they CAN leverage the expense of that interruption across multiple interactions.

This is the big win here. By leveraging one interruption across numerous communications, the Permission Marketer has an unfair advantage. One message becomes six or ten or a hundred. A momentary interruption becomes a dialogue that can last for weeks or months.

Let's get specific and compare a marketer who had to make a single ad pay off with one who has the luxury of using Permission. The Interruption Marketer must earn back the entire cost of the ad after just one viewing. So, if it costs $2 to get one person to pay attention to the ad, it only pays off if, on average, it generates more than $2 in new business profits per viewing. If the impact is equal to or greater than the cost, go ahead and run the ad.

Running the same ad with frequency dramatically increases the amount of payback required. The marketer has to hope for $6 in new profits as a result of putting this ad in front of a prospect three times. If the third ad can't generate enough impact to make it worth running, it doesn't pay for itself.

Because frequency is free in an online Permission program, and much more effective offline, the marketer has the luxury of riding the impact curve up without a matching cost curve. Once the initial toll is paid, in other words, the rest of the ride is close to free.

Thus, in this example, if that one interruption (which cost $2) can turn into five communications, the marketer gets a bonus of four extra chances to earn back that $2.

Click Here to purchase Permission Marketing at a discount from Amazon.com

Copyright 1999, Seth Godin. All rights reserved.

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Get the Book!cover

Permission Marketing : Turning Strangers into Friends, and Friends
into Customers

by Seth Godin

Seth Godin is a very important  voice in the marketing field. Permission Marketing is  must reading for every marketer who plans to succeed in information age. A significant concept that will be more relevant as interactive  technology impacts marketing.

CLICK HERE FOR MORE INFO OR TO BUY: Permission Marketing at Amazon.com

 

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