Tools of the trade for marketeers were once limited to direct mail and telemarketing. Now new fields of electronic marketing are being spawned by the Internet, including e-mail marketing and its variants, permission marketing and viral marketing.

Marketeers will send more than 200 billion e-mails annually in the United States by 2004, according to Forrester Research.

Financial institutions intend to be among those marketeers. US-based Meridien Research has determined that financial institution spending on e-mail prospecting and campaign management software now exceeds $200 million (€206 million) annually and will grow by more than 40 per cent a year.

"E-mail clearly has established itself as the communications medium for an Internet-savvy world," said Mr Bill Bradway, research director at Meridien Research. "Financial institutions with automated e-mail campaign management solutions can personalise and target their e-campaigns so the right customers get the right information in time to use it," he said.

Today's savviest e-mail marketeers are employing a technique called permission-based marketing. Marketeers gain "permission" to establish e-mail communication with potential customers. They may, for example, ask them to fill out a survey. This voluntarily supplied information would then be used to target future marketing messages.

Response rates from permission-based e-mail can run as high as 18 per cent, compared with the 2 per cent typical of direct mail, according to Sue North, director of solutions marketing for eXstatic Software, a provider of e-mail marketing software. EXstatic is a subsidiary of Boston-based Exchange Applications, a provider of more traditional database marketing and customer-relationship management software used by several prominent companies.

Sending e-mail marketing messages costs significantly less than sending direct mail, Ms North said. E-mail messages cost 1 cent to 25 cents per message, compared with $1 to $2 for direct mail pieces. Consumer reaction to e-mail marketing campaigns can be more quickly measured.

"The balance of power is shifting to consumers and they control what they see and filter through e-mails," Ms North said. "Our first challenge is to drive the desired behaviour in a customer base."

Citigroup is using software from eXstatic to market its Internet-only bank, Citi f/i. The software also handles in-bound and out-bound e-mail messages in call centres, marketing divisions, and branches in 12 countries.

Microsoft's MoneyCentral financial portal site is using the eXstatic software to send personalised stock quotes. After three years of using the software, the Microsoft marketing department is generating 60 million e-mail messages a month, almost one billion e-mail messages to date, Ms North said.

EXstatic is sold as packaged software or as an application hosted by eXstatic. A new version of the software, eXstatic eCampaign Designer, is aimed at helping marketeers control the content and personalisation of email messages. It also lets marketeers track feedback during a campaign.

As marketing proliferates through multiple channels, database issues are emerging as a big challenge. Financial institutions "need a common identifier so they know that the same person who sent an e-mail is also the one who left a phone message," Ms North said.

The investments many banks have made in data warehouses and data-mining software should pay off in this respect. According to Meridien Research, the data warehouses and data-mining programmes that drive today's direct mail and telemarketing campaigns eventually will support Internet marketing, as well. "It's not about losing the data warehouse, which is an incredible place for transaction data and consumer history," said Mr Bradway at Meridien. Internet marketing "is another way to convert the value of data warehouse spending into a business benefit and loyal customers".

Another form of marketing that takes advantage of the pervasiveness of e-mail is earning a reputation as "viral marketing". This approach encourages potential and existing customers to forward e-mail messages to friends and family to persuade them to take some action, such as opening an account. Rewards are granted to those who get others to sign up.

A new Internet financial services company, X.com, has built its own proprietary software to conduct a Refer-a-Friend programme among its customers, said Ms Julie Anderson, director of public relations. Every time a current customer recommends someone who is then approved to become a customer, the person who did the referring receives a $10 credit in his X.com account, up to a maximum of $1,000. X.Com also pays new customers $20 when they sign up for an account.

"For the moment, we're alerting people to new services," Ms Anderson said.

"It's not so much a cross-sell." All of X.Com's marketing is being conducted among current customers; it is not conducting any external e-mail marketing.

Whether it's permission marketing, viral marketing, or plain e-mail marketing, "our sense is that campaigns launched via email will have an explosive future", Mr Bradway said.