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Virgin Megastores keeps customers in hand

The division of Virgin Entertainment Group will offer 10,000 preferred customers a free personal digital appliance that they can use to browse the Net--but not before logging on to Virginmega.com.

Virgin Megastores next month will offer 10,000 preferred customers a free personal digital appliance that they can use to browse the Net--but not before logging on to Virginmega.com.

Virgin Megastores, a division of Virgin Entertainment Group, is expected to announce the promotion later this week, CNET News.com has learned. The digital devices, known as PDAs and supplied by Internet Appliance Network (IAN), are designed to give Virgin's customers an easy, portable way to access the Internet while allowing Virgin to maintain a prominent connection with its customers online.

Virgin's giveaway comes as many e-commerce companies look for new ways to build customer loyalty and increase their brand recognition. At the close of this holiday shopping season, many online merchants, in an attempt to increase sales in the new year, have turned their attention to converting first-time shoppers into long-term customers.

"It's a question of who has the best potential to own a customer," said David Cooperstein, a research director for Forrester Research. "This appliance gets people who are not online to go online and gives people who are online, but only in a specific location like work, another option."

The digital devices cost $400 a piece to make, according to IAN, but they are free to Virgin's 10,000 preferred customers for the first year. Although the devices remain free, Virgin will charge its PDA customers $50 a year, after the first year, for the Internet connection.

The PDA plugs into any phone socket and features a flat 10-inch monitor, wireless keyboard and 32 MB of flash memory storage. Once logged on, users are sent directly to Virginmega.com--and again when checking email. While browsing the Internet, users will continually see Virgin's logo, helping to solidify the company's bond with the customer, according to Virgin's president of e-commerce, Glen Ward.

"There's no doubt that we want people's attention," Ward said. "Customer loyalty is what this game is all about."

The Virgin-branded PDAs give users mobile access to the Internet, without lengthy log on times, and allow MP3 downloads from the music site.

Industry analysts have long said that e-commerce companies have been too concerned with acquiring new customers at the risk of losing old ones. In a June report by Forrester, only a third of online stores had implemented "customer loyalty programs."

But that is changing. Several online merchants said last week that they will attempt to embed their brand names into customers' psyches and win long-term support through a variety of traditional and Internet-savvy methods.

Online grocer Webvan, for instance, is expanding its delivery service and increasing product offerings in the new year. Online bookseller Borders.com and DVD merchant DVDExpress will send gift certificates to new customers.

IAN is planning to offer the PDAs and services to a number of companies in the future. The New York-based company is backed by venture capital firm Flatiron Partners.