Cheap, fast, and with a response rate that puts direct mail to shame, e-mail is a terrific way to reach customers. But only if they're already your customers. If not, chances are, they'll delete your e-missive in a heartbeat. In a recent study, Jupiter Communications found that although 68% of consumers liked getting promotional e-mail from companies whose products they'd bought, only 14% welcomed e-mail from companies with which they had had no previous dealings. With a little ingenuity and viral marketing, however, e-mail marketing can be used for acquiring new customers as well as retaining old ones.

Dan Cunningham launched Dan's Chocolates last November, when the Internet candy retailer was spun off from Web greeting card company Blue Mountain Arts. Cunningham figured that anyone who tasted his chocolates would want to buy some. The problem was getting people to try them.

So Cunningham has relied heavily on a combination of e-mail, advertising, and promotions to put his chocolate into consumers' mouths. "Essentially, we have an approach where we try to establish contact with customers as part-paying customers and gradually move them to become full-paying customers," Cunningham says.

In January, Cunningham rolled out a promotion that allowed potential customers to send a two-chocolate sample to a friend for just $1, charged to the giver's credit card. Dan's publicized the offer through radio ads, banner ads, and partnerships with Blue Mountain Arts and For each dispensed sample, Dan's collected the e-mail addresses of two strong prospects. About half the respondents supplied the e-mail addresses of friends, so that they could participate in the offer, too.

For follow-up the company sends out e-mail coupons good for $5 off a consumer's next purchase. So far the program has been a success. According to Cunningham, about 10% of those e-mail leads eventually buy chocolates -- which compares favorably with the 2.5% customer acquisition conversion rate for most e-mail marketing. The start-up is on track to do $3.5 million to $5 million in sales this year, Cunningham says.

Dan's has obviously learned some lessons from its parent, Blue Mountain, an old hand at bringing new visitors to its Web site by giving away e-mail greeting cards to consumers, notes e-mail marketing consultant Jim Hoffman of Bigfoot Interactive. But Dan's has figured out how to use the technique to move a physical product through nonphysical channels. "I think their approach is very smart," says Hoffman.