INFORMATION AS A TOOL IN MARKETING STRATEGY
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TABLE OF CONTENTS
1 Introduction
1.1 Forces Driving Changes In Consumer Behaviour
1.1.1 Supply Side: Technology Evolution
1.1.2 Technologies for Personal Use
1.1.3 Demand Side: Lifestyle and Demographic Changes
2 Emerging Trends In Consumer Behavior
2.1 Disintermediation, and Reintermediation
2.2 Personalization: From Aggregation to Dis-aggregation
and Re-aggregation
2.3 Shopping on Demand
2.4 Consumers as Co-producers
2.5 Greater Value Consciousness
2.5.1 Money
2.5.2 Time
2.5.3 Effort
2.5.4 Space
2.6 Blurring Between Consumer and Business Markets
2.7 Power Shift from Marketers to Consumers
2.8 The Automation of Consumption
3 Strategies for Capturing Consumer Information
3.1 Constraints In Physical Marketplaces
3.2 Categories of Information that Marketers look for
3.3 How Online Markets Help To Eliminate Information Constraints
3.4 Role of Information Intermediaries
3.5 Uncertainties
3.5.1 Expanding the reach of online environments
3.5.2 Technology Deployment
3.5.3 Scope of information capture
3.5.4 The potential impact of privacy concerns
3.6 Four Value-Creation Scenarios
3.6.1 The information toll road scenario
3.6.2 The information fragmentation scenario
3.6.3 The information integrator scenario
3.6.4 The customer control scenario
3.7 Explicit Information Capture Strategies
3.7.1 Targeting high-value information
3.7.2 Capturing high-value information
3.7.3 Leveraging the value of information capture
4 Emerging Strategies for e-commerce
4.1 Choosing A Marketplace Model
4.1.1 Are there transaction savings or benefits to
be realized?
4.1.2 Is an electronic market for our product developing
quickly?
4.1.3 Do we have substantial market share or buying
power?
4.1.4 Would a neutral intermediary be beneficial?
4.2 Rules For Winning
5 CONCLUSIONS
1.0 INTRODUCTION
In the not so distant future, rapid advances in technology,
escalating global competition, and rising consumer expectations for quality,
speed of response, and customisation will require companies to substantially
rethink their business models. One thing is clear; the future will be substantially
different from the present. Society went through dramatic changes and upheavals
as a result of the transition from the agricultural age to the industrial
age; the transition to the information age will be accompanied by even
greater change. That transition is underway but still remains in its early
stages.
The emerging consensus about the future of various information
industries today is that they will converge because they are all increasingly
based on digital electronic technology. The vision revolves around the
presence of an interactive broadband digital "highway" terminating in very
high-resolution multimedia display terminals in consumers' homes and workplaces.
The viewer would be in control of content scheduling and selection; information
would not, for the most part, be "broadcast" (except for live events);
rather, it would be stored in digital "video servers" to be viewed or downloaded
on demand.
Today’s World Wide Web (WWW) represents a crude approximation
of the capabilities and functionality that are expected to be widely deployed
by the middle of next decade. It is serving as a very large test bed for
companies and as a "training platform" for consumers to learn new modalities
of interaction and consumption.
From the perspective of consumers, the primary impact
of the deployment of such an infrastructure will be to ease the often severe
time and place constraints that are currently placed on them. No longer
will goods and services be offered primarily at the convenience of the
seller; "anytime, anywhere" purchasing as well as consumption will become
commonplace.
These impacts will become more acute as communication
bandwidths rise exponentially and terminal equipment becomes simultaneously
more powerful, sophisticated, easier to use, affordable, and portable (smarter,
easier, cheaper and smaller). Once the appropriate hardware is in place
and the telecommunications infrastructure has been established, an enormous
range of services can be exchanged at nominal incremental cost, such as
location-independent shopping and banking, computer-mediated education,
and training, professional consultations, and various informational, entertainment,
and leisure services. This combination of technologies is likely to become
quite widespread in the United States by the year 2005 and in other advanced
countries by 2010.
Changing consumer behaviour will make it necessary for
the marketing function to change dramatically as well. In fact, the marketing
function will be at the centre of change; marketing will become increasingly
decentralised and fully integrated into business operations. Marketing
and its institutions have a great deal to lose as well as many opportunities
to make dramatic gains. Successful marketing in this new environment will
involve "monocasting" or "pointcasting" of communications, "mass customisation"
of all marketing mix elements, a high degree of customer involvement and
control, and far greater integration between marketing and operations.
There will be more efficient utilisation of marketing resources, reduced
customer alienation resulting from misapplied marketing stimuli, "desirable"
customers.
1.1 Forces Driving Changes In Consumer Behaviour
Two major forces influence consumer behavior, evolving technology,
and changing lifestyles and demographics. These are respectively described
below.
1.1.1 Supply Side: Technology Evolution
Undoubtedly, the pace of technological evolution in recent
years is having and will continue to have a great impact on the lives of
consumers. Rudy Puryear, a senior information technology strategist at
Andersen Consulting, describes the new age as the "age of less". However,
mass customisation applies to more than just the product. Technology allows
consumers to:
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go shopping without going to the store (storeless);
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travel without a ticket (ticketless);
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work without going to an office (officeless), and so on.
Following aspects of technology are of particular significance:
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Production Technology: Breakthroughs in production
technology such as CAD-CAM, flexible manufacturing systems and just-in-time
production are affecting competitive marketing in a number of ways. For
example, they are redefining the limits of quality, greatly increasing
the level of affordability for many products, enabling a higher level of
customisation, and providing customers with a great deal of variety. Other
significant technologies in this arena include photo realistic visualisation,
GroupWare (e.g., conferencing systems across design functions and across
design, manufacturing and sales), virtual reality, design for manufacturability
and assembly databases, component performance history databases, and 3-D
physical modelling technologies such as stereolithography.
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Distribution Technology: Recent innovations in distribution
technology include
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computer-assisted logistics (CALs)
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the refinement of scanner and other product identification
and tracking technologies,
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electronic data interchange (EDI)
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point-of-sale (POS) terminals linked to vendors
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expert systems
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satellite-based locational systems
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automated retail and warehouse ordering,
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flow-through logistics
Benefits include
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reduced damages
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reduced supplier and distributor wholesale inventories
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warehousing, transportation, administrative, and manufacturing
efficiencies
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reduced "forward buying,"
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better market coverage
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fewer stockouts and distress sales
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more refined target marketing, and
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faster response to market trends.
1.1.2 Technologies for Personal Use
Technologies having the fastest gains in price-performance
are those intended for personal rather than institutional use. Personal
information devices have been riding and will continue to ride a steep
experience curve based on the unique "economics of electronics." One of
the fundamental properties of such technologies is their inverse economies
of scale; the smaller the unit, the greater the price-performance. This
is due to the fact that smaller units can be produced in mass quantities
with very low (sometimes near-zero) variable costs. Large units, on the
other hand, tend to be produced in small volumes and retain a significant
proportion of variable costs. Thus, today's personal computers offer far
more by way of "MIPS per dollar" than do today's mainframes or supercomputers;
video games and other lower end consumer devices tend to offer even better
price-performance than that.
Consumers will rely heavily on these technologies, while
producers will rely on a mix of personal and institutionally oriented technologies.
As the power and pervasiveness of the technologies at their command grow,
consumers will be in the hitherto unique and unaccustomed position of controlling
a far greater share of the information and communication flow between the
buyer and seller than ever before. In other words, consumers can and will
have more information about product providers in most cases than providers
will have about consumers; far from being passive "targets" of marketing
activity, consumers will dictate the timing and modality of communications,
and they will determine the time and place of any resulting transaction.
1.1.3 Demand Side: Lifestyle and Demographic Changes
Broad demographic shifts are underway that are causing gradual
but major changes in society. These macro-level changes have a major impact
on individual consumer behaviour.
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Negative Growth Birth Rates and Rising Median Age in Developed
Countries: The birth rate in the United States has been falling for
more than two decades. The decline in the birth rate began in 1965, when
the arrival of "the pill" caused the fertility rate to fall by 30 percent
in one year. The legalisation of abortion a decade later caused another
precipitous drop. Wolfe (1996) described this phenomenon as "deyouthing-an
historically unprecedented event going relatively unnoticed." During the
1990s, the number of adults under the age of 35 will decline by 8.3 million.
This transition is having a major effect on consumption patterns. For example,
as a result of deyouthing, the housing industry has shrunk dramatically;
new housing starts have declined from 1.8 million per year in the 1970s
to less than a million currently.
Other developed nations are experiencing even more severe
effects from this trend because they tend to have much lower levels of
immigration than the United States (more than 90 percent of the population
growth in the United States between 1990 and 2050 will be due to immigration).
Populations in most developed countries are actually shrinking. The trends
for Japan are especially ominous. Between 1990 and 20930 alone, the number
of Japanese under the age of 50 will decrease by some 24 million people,
a net 26 percent loss of population. Birth rates in less developed countries
by and large continue above the replacement level, although the overall
trend is downward.
The differences in median ages across countries can be
quite dramatic. The median age of adults in the United States is now 43
and will reach 50 in less than two decades. According to Wolfe (1996),
the "psychological centre of gravity" (PCG) is a five-year window around
this median age of adults, or 38 to 48. He suggests that this PCG defines
the primary tendencies of a culture; for the United States, this suggests
that middle-age values and perspectives will increasingly come to dominate
the national psyche. In particular, older consumers tend to respond more
favourably to relationship marketing approaches than do younger consumers.
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More women in workforce: Full time working women now
represent 56 percent of all women and will represent 65 percent by the
year 2000. This has put tremendous pressure on the "traditional" family.
The old model was that women would stop working when they decided to have
kids. The new model is that most women must work if they want to have kids.
As a result of the loss of its anchor (i.e., a full-time homemaker), the
family as a unit of social and consumption analysis is becoming obsolete.
As single-person or dual-career households proliferate, the need to define
a separate existence or space will result in highly individualistic lifestyles
and behaviours, even within family units. We will increasingly have to
look at individual behaviour; family members exhibit more of a roommate
lifestyle. This will increase the need for personalised attention to each
household. Also as a result of this trend, most households are now relatively
time poor and technically rich. Any time markets impose a time or place
constraint; the market will react negatively. Time in particular will become
the most precious commodity. As activities compete for time, consumers
will redesign tasks and consume too much time and embrace time saving and
time-shifting technologies. They will demand hassle for ("get it right
the first time on demand. Cooking in the home is quickly becoming a dying
art; nobody does it anymore (almost). A third of our meals are eaten out
now; this will rise to two-thirds. Of this remaining one-third, we do not
cook 50 percent of it. The kitchen is increasingly the communication centre
of the house rather than the food centre. The increased numbers and visibility
of women in the workplace has led a gradual blurring of gender distinction.
For men, jewellery, cosmetics, personal care items, and plastic surgery
are all growth markets. By 2000, only 55 percent of the U.S. population
will be WASPS. Hispanics are the fastest growing group and will be the
largest minority by that time. African Americans will remain at 12 percent,
whereas the percentage of Asians will grow. California and Texas will become
white-minority states. As a result of the changing ethnic make-up of U.S.
society, several changes are underway. In many sectors, neglected ethnic
markets are becoming lead markets; for example, salsa and other Mexican
sauces now sell more than ketchup. 'Re local grocery store is now a world
bazaar, something that requires extraordinary logistic systems. Increasing
cultural diversity is leading to a clash of value systems: the Protestant
work ethic versus other values. There are also increasing linguistic problems,
especially in schools and the workplace.
2.0 EMERGING TRENDS IN CONSUMER
BEHAVIOUR
Consumer behaviour has been changing that has been the driving
force behind the need of consumer information. We foresee eight major trends
in consumer behavior. These trends are listed in Figure 2.1.
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Automation of Consumption
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Power Shift to Consumers
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Blurring of Consumer and Business Markets
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Greater Value Consciousness
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Dis-intermediation and Intermediation
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Personalization and Reaggregation
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Shopping on Demand
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Consumers as Co-producers
Figure 2.1 Changes in Consumer Behaviour
We now discuss each of these eight trends and how
changes in them affect the marketing strategy.
2.1 Disintermediation, and Reintermediation
The current marketing practice depends heavily on the presence
of multiple intermediaries between the producer and consumer. These intermediaries
primarily add time and place utilities to the product utility "engineered"
into a niche offering by the producer. They provide broader and more convenient
access to the products for a wider range of customers. In addition to serving
as essential conduits for getting products to the market, intermediaries
have also served as informational conduits.
Producers contact-with end-user customers and must rely
on them for information pertaining to those customers. Intermediaries play
a role in directing and filtering information from producers that is intended
for end users. Building an adequate distribution channel is usually the
biggest hurdle that a new entrant must face in establishing a foothold
in a market; this is usually the slowest and most expensive part of the
marketing mix to implement. Distribution channels add huge cost elements.
For example, they may include multiple warehouses at the factory, wholesaler,
retailer, and even at consumer level.
As has already been well documented, the electronic world
changes all that. Companies small and large are able to achieve high level
of accessibility almost immediately. Establishing a two-way information
flow directly with end users is readily possible. The automation of numerous
administrative tasks enables the company to serve huge numbers of customers
efficiently and effectively. Innovations such as demand-driven marketing
can dramatically lower inventory levels. As a result, more and more companies
are finding it possible to deal directly with more and more of their customers.
In the process, they are putting enormous pressures on their intermediary
(e.g., wholesaling and retailing) partners.
This trend towards disintermediation is still in its early
phases, and massive dislocations will occur as a result of it. The trend
will also cause major growth in the support services needed by companies
that deal directly with larger numbers of customers. For example, growth
in small package shipping will likely far exceed that in bulk shipments
or the building of warehouse space. Another consequence of this trend may
well be reintermediation. By this we mean that new categories of intermediaries
will emerge to capture the value-creating opportunities that will undoubtedly
be thrown up by the use of new ways of interacting between consumers and
producers. As with traditional intermediaries, these too will thrive on
the basis of economic transfer principles; intermediaries that deliver
greater value at lower cost will prosper.
Examples of new types of intermediaries may include rating
services, automated ordering services, services based on consolidating
numerous small orders from numerous consumers into more economically viable
quantities, and so forth. Market specialists could emerge who would orchestrate
the offerings of numerous suppliers around the specialised needs of a single
customer.
2.2 Personalization: From Aggregation to Dis-aggregation
and Re-aggregation
The emergence of a relatively homogeneous mass market earlier
in this century led to the development of various mass marketing approaches
that continue to define and dominate the marketing function today. For
some time now, we have recognised that the mass market is splintering (even
atomising) into ever-smaller segments. Talk has even arisen in recent years
of a so-called segment of one, and Stan Davis came up with the powerful
oxymoron of "mass customisation" as the way in which we will
have to increasingly operate in the future. Although we certainly agree
with the broad premise of this argument, we believe some important caveats
apply. First, customers are not always looking for customized products;
they may be perfectly content in many cases with a well-designed standardised
product.
However, mass customisation applies to more than just
the product:
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it should envelope all the elements of marketing mix. Thus,
the price, advertising message, the distribution mode may be customized,
even if the product is not.
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Second, new forms of aggregation of demand will undoubtedly
occur. In the past, these moves were driven entirely by producers. In the
future, it will become increasingly facile for the aggregation to be driven
by customers. For example, customers who individually purchase small quantities
of a product will find it very easy to pool their purchases to enjoy better
terms.
2.3 Shopping on Demand
As discussed earlier, consumer behavior in the future will
increasingly feature shopping on demand and consumers will cease to be
held hostage to the time and place constraints historically imposed on
them by businesses. Shopping on demand will include anytime, anywhere procurement
as well as anytime, anywhere consumption. Shopping on Demand in many facets
of consumption, consumers will take on increasingly active roles. For example,
they will become directly involved in customising the products they purchase.
They will take over some of the support functions that are normally performed
by companies; this trend is akin to the one toward self-service in retailing.
For example, FedEx now allows its customers to track their own packages
via the Internet, bypassing the customer service department altogether.
2.4 Consumers as Co-producers
There is a distinct trend from Insourcing to Outsourcing.
Somewhat paradoxically, as consumers take more control over certain commercial
relationships, they will also relinquish a measure of control in other
areas. This is not as contradictory as it might first appear; after all,
consumers have a limited amount of time and effort that they are willing
to expend, necessitating trade-offs. As a result of escalating time pressures
and growing economic resources, consumers will begin to outsource household
functions much more over time. The argument here is very similar to the
one that drives outsourcing in the business context; specialist vendors
will be used to deliver far better price-performance value than consumers
can create in-house. In other words, the make-versus-buy question will
increasingly be resolved in the favour of buy.
Many services (such as lawn care, house cleaning, and
child-care) are already outsourced to a significant degree. Many new areas
will be outsourced in the future. For example, household product needs
may be outsourced to such firms as Proctor and Gamble, home dining may
be outsoureed to restaurants that will deliver prepared food daily to the
consumer at home
2.5 Greater Value Consciousness
Although they have benefited in many ways as well, consumers
have paid the price for marketing's extraordinary lack of productivity
in the past. High advertising budgets, the proliferation of brands, runaway
sales promotions and uneconomic levels of inventory build up. All of these
activities cost way out of proportion to the value they created (which
was, in many cases, negative). As marketing reforms, customer expectations
for value received will soar.
Consumers will demand and receive more value in exchange
for the four primary resources at their disposal: money, time, effort,
and space.
2.5.1 Money
Consumers will expect to pay more for most products. They
will willingly pay more, provided that the additional value offered exceeds
the incremental price. Because of their recent experience with major product
categories such as computers and consumer electronics, consumers have come
to expect as a given the proposition that products get better and cheaper
over time. An era of negative inflation will characterise many more product
categories.
2.5.2 Time
For many consumers, especially those in two-income households,
time is a more valuable currency than money. Many consumers will gladly
make a trade-off, paying a higher price if they can save time in the process.
Marketers must be extremely wary of placing heavy time demands on consumers.
2.5.3 Effort
As life gets ever more complex in so many dimensions, consumers
are looking for convenience and simplicity wherever they can find it.
2.5.4 Space
Given a choice, consumers would rather not be forced to warehouse
large quantities of products in their basements in order to benefit from
lower prices. Heavy users should get the advantages of scale economy; however,
they should not have to swallow huge lumps of inventory in order to do
so. Value buying will become paramount, as consumers become more value
conscious than ever. Efficiency, with which information will be shared
between customers and companies, it will be almost impossible for companies
to survive without delivering peak value. In contrast with the past, Consumers
will respond far more to innovation-based differentiation than to image-based
differentiation. Barriers to consumption will increasingly disappear as
a result of the adoption of value-based marketing, more creative pricing
approaches (leasing, metering), the separation of form from function.
Given the right value equation, the limits to consumption
will be revealed as being far less than what were believed possible. It
is now commonplace for households to have numerous radios, telephones,
calculators, and even computers. Many consumers own three or more watches.
Greater competitive pressures on pricing coupled with an enhanced ability
to easily locate the best price, will be a fact of life in the New World.
The impact of this will be threefold.
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First, successful manufacturers will increasingly seek to
control their prices at retail to minimise what they view as destructive
intra-brand price competition.
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Second, the primary drivers of profitability will be mostly
on the cost side; companies with highly efficient production and marketing
systems will prosper.
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Third, strong customer relationships will give companies
an opportunity to broaden those relationships through the provision of
an ever-expanding array of products and services. In essence, many successful
producers of a product will become retailers of a multitude of other products
for the same customer.
2.6 Blurring Between Consumer and Business Markets
The lines between the home and the workplace are rapidly
blurring. More and more people work at least part-time in their homes,
and a growing number of people undertake some of their personal tasks at
the office. As this trend continues, many consumer decisions will become
more like business decisions. Many technology applications traditionally
seen as home based will be important to businesses as well. For example,
video shopping has great potential in a business environment; an automobile
mechanic will be able to see a picture before ordering a part. To see how
to make repairs the worker has not done in a long time, he or she will
be able to view a video clip. This movement of home based services to business
and vice versa can already he observed. Typical homebound applications
such as television and VCRs are now "trickling up" into business applications.
Telephone answering machines trickled up to businesses as voice mail. Business
applications such as e-mail, the Internet, EDI, and accounting software
are trickling down into the home market. Dual-purpose applications include
video shopping, distance learning, travel planning, news on demand, legal
or financial advice, information services, on-line databases, and so forth.
Some applications will remain geared to the business or consumer market,
although even here analogous applications may be developed.
2.7 Power Shift from Marketers to Consumers
Inevitably, increased competition and greater access to more
powerful information tools will put greater power in the hands of savvy
consumers. As a result, it is possible that buyers will increasingly be
viewed as marketers and sellers as prospects in the marketplace. In any
event, consumers will no longer be targets of marketing activity; they
will be knowledgeable and demanding drivers of it. Marketers will have
to show far greater respect for consumers, who have increasingly become
immune to marketing hype. Instead, they will demand content-rich information
and demonstrable product innovations.
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Transactions will occur in the context of a complex relationship
revolving around lifestyle issues. Customer managers will be charged explicitly
with identifying, retaining, and growing profitable customer relationships.
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Market activity will be driven almost entirely by buyer demand;
marketing management will essentially become demand management: the task
of influencing the level, timing, and composition of demand in a way that
will help the organization achieve its objectives.
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Customer knowledge will truly become the corner-piece of
effective marketing, and that knowledge will become a highly valued corporate
resource.
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By linking directly into production systems, consumers will
effectively become producers; they will engage in self-service, self-design,
and self-ordering and provisioning.
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Consumers will be highly information technology literate;
they will therefore not be impressed by the mere use of such technology.
They will be highly efficient at information searching and processing.
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Consumers can conduct product research on-line, log onto
bulletin boards and interact with other consumers, and provide and receive
helpful hints about the product, its use, and acquisition.
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In this environment, "information invitations" may become
common; companies will have to seek permission to present their case to
consumers by inducing interest, unlike the message clutter that is rampant
today.
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As communication between marketers and customers becomes
increasingly interactive, relationship marketing will become the rule rather
than the exception. Buyers and sellers will interact in real time. Just-in-time
marketing will replace the traditional just-in-case marketing.
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Time and place constraints on purchasing (and even consumption
of many products and services) will become obsolete. 'Nearly instant gratification
of customer needs will be common; thus, lead times of all kinds (e.g.,
for product development or between order placement and shipment) will have
to shrink dramatically.
2.8 The Automation of Consumption
Consumers' time poverty and an abundance of information technology
will lead to a greatly increased level of automated transactions with marketers.
Akin to automatic replenishment as practised in the business-to-business
marketing area today, such arrangements will become increasingly commonplace
in the future. They may happen directly between consumers and manufacturers
for larger purchases, and through intermediaries for smaller purchases.
3.0 STRATEGIES FOR CAPTURING
CONSUMER INFORMATION
The history of consumer marketing during the past two decades
reflects a growing realisation that information about customers is a key
competitive asset. Banks have invested heavily to integrate information
systems that facilitate access to broad activity profiles of customers
across the major product categories offered by a bank. Yet much of the
information marketers want most about consumers has nearly always been
out of reach. When is a consumer going to make a purchase? What is the
precise impact of advertising on that decision? What (and how much) are
consumers buying from competitors and across categories?
Online markets (e.g., the World Wide Web or proprietary
online services such as America Online or CompuServe) hold the potential
to allow consumer marketers to answer these questions for the first time.
They can provide better visibility of what consumers are buying, when they’re
buying it, and from whom they’re buying it. Companies best able to capture
this information and use it strategically will see market power shift their
way as improved information flows allow them to select the most desirable
customers and to better target them when they’ve signalled an intent to
purchase. Already a new breed of network-based intermediaries is positioning
to accomplish this information capture by aggregating people and resources
on networks. Once these aggregations reach critical mass, the new intermediaries
will be well positioned to create and capture value by leveraging rich
profiles of consumer and vendor activities.
The implication for companies of all stripes is that they
must begin to pursue explicit information-capture strategies addressing
issues of targeting, capturing, leveraging, and competing for information
about consumers. These strategies must in turn reflect a thorough understanding
of the range of potential scenarios by which a still immature online marketplace
is developing.
3.1 Constraints In Physical Marketplaces
Vendors in physical markets, for example, often find that
their
"window" on transaction histories tends to be limited to their own customers.
For example, United Airlines can identify a business traveller who flies
extensively on United and selectively upgrade service to that traveller
to increase loyalty to United. It has much less ability to identify an
American Airlines frequent flyer that happened to book a flight on United.
From United’s perspective, this passenger appears as a relatively uninteresting
passenger because she doesn’t appear to travel much; therefore she would
not receive special attention or service. If United had access to integrated
travel profiles of all its passengers (even people who have never flown
United before), it could be much more effective in targeting and serving
highly profitable business travellers.
Retailers are in a better position than vendors to see
a broader range of customer activity, but even they are hampered by two
obstacles.
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First, many retailing businesses are highly fragmented,
so they only see a small fraction of the total market.
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Secondly and more importantly, they lack an established
tool for tying specific transactions back to identifiable consumers
who can then be targeted by marketing programs. A number of retailers are
introducing "frequent buyer" programs in an effort to overcome this barrier,
but these programs are still relatively new and so far consumer acceptance
has been mixed.
In addition to integrated transaction histories, marketers
also strive to obtain better visibility on intent to purchase, especially
for higher ticket items such as homes, cars, and airline travel. Unfortunately,
access
to this information is also very limited in traditional market environments.
Market research techniques have been developed to measure
preferences and likelihood of purchase but these techniques tend to be
segment-based and less useful in identifying specific individuals who
are about to buy. Even direct survey questions on intent to purchase have
limited ability to pinpoint those who actually will purchase.
3.2 Categories of Information that Marketers look for
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What marketers would really like to see is demonstrated
preference information where a consumer’s actions give a clear, early
indication that a consumer is about to make a purchase decision in a specific
product category. Such information is also highly time-sensitive and the
ability to obtain this information quickly tends to be limited.
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Another category of customer information with enormous value
involves the correlation between exposure to advertising and purchase
behaviour.
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Finally, another category of information that is very valuable
and yet typically requires considerable expense to compile in traditional
market environments involves consumer satisfaction with specific
products or services. This information is essential to drive customer retention
and customer capture programs, as well as for the valuable feedback it
provides for product or service enhancement programs.
3.3 How Online Markets Help To Eliminate Information
Constraints
The emergence of online marketing environments offers the
potential to enable marketers to overcome the constraints on information
capture that exist in the physical world. Broadly speaking, this is taking
in place two directions.
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Capturing information: First, online environments
enhance the ability to capture valuable categories of information conveniently
and cost-effectively. Since advertising and transactions are delivered
electronically, it is easier to maintain an electronic record of this activity
over time without requiring any additional data entry. This electronic
"trail" can prove particularly helpful in more effectively coupling across
information categories. For example, a consumer who books airline tickets
and reservations online in a travel forum provides both the potential for
generating a rich and integrated travel transaction history and for coupling
that with demonstrated preference information. Thus, when that consumer
begins to ask for information in a travel forum or in a community of interest
on the Internet about places to go in Italy, a strong early indicator is
provided that this person may soon be in the market for a trip to Italy.
That information can be cross-matched with the travel transaction history
to determine the relative attractiveness of that consumer not just for
the next travel occasion but over a longer time frame.
-
Similarly, online information capture allows marketers to
discover which advertisements have impact on purchase behavior. Since advertisements
can be targeted down to the level of an individual consumer, and a purchase
can be made simply by clicking an icon on the advertisement, advertisers
can now potentially track much more precisely who has seen an advertisement
and whether they were moved to purchase. Advertisers can not only determine
the effectiveness of specific advertising in the aggregate, they can now
analyze effectiveness at the level of specific customer segments and even
individual consumers. This invaluable information allows them to more effectively
target future advertisements, and to refine their message for greater impact.
Better yet, this information is potentially available to marketers in real
time. Marketers will soon be able to zero in on consumers whose online
behavior has signalled a potential intent to purchase in a particular product
or service category. They’ll then be able to target this buyer with a product
offering before the decision phase of her purchase is complete. By definition,
this information has a relatively short shelf life. Once the transaction
has occurred, the signalling value disappears. In most cases, the value
of this information can be measured in days, if not hours, so the ability
to access this information quickly is critical.
-
Finally, the information captured online can provide a complete
picture of consumers’ online activities, including transaction history
and demonstrated preferences, across categories of goods and interests.
More complete consumer profiles would allow marketers to better understand
and anticipate consumers’ purchasing behavior. For example, an airline
or travel vendor’s understanding of a customer who frequently purchases
tickets to California would be significantly enhanced by the knowledge
of his/her purchasing camping equipment on a regular basis and participating
in online hunting forums. The integration of online information across
categories is feasible as network access providers, large gateways, and
information files resident on consumer’s computers all have the potential
to collect comprehensive online histories.
3.4 Role of Information Intermediaries
The second broad change to information capture brought about
by online market-spaces is to make it possible for an entirely new set
of companies to capture information. Unlike in physical markets, where
vendors or retailers are usually best positioned to learn about customer
preferences and transactions, in online markets a new category of network-based
intermediaries is strongly positioned to create value by aggregating
people and resources on networks and thereby developing rich profiles of
consumer and vendor activities. These players could be in a position to
capture rich profiles of network users and their transactions on the network
- in many cases, much broader profiles than individual vendors might
hope to capture and much more linked to specific consumers than traditional
retailers have been able to capture. Suddenly previous assumptions about
who best captures what kind of information are now no longer so certain.
Related assumptions about who extracts the value from this information
now also need to be reassessed.
3.5 Uncertainties
The full potential and implications of information capture
in online environments won’t be realised until a number of challenges are
addressed. These challenges and uncertainties fall broadly into four
categories: reach, technology deployment, scope of capture, and privacy.
3.5.1 Expanding the reach of online environments
Online environments are still relatively new platforms for
consumers in general and for commercial transactions in particular. But
there is another dimension of reach that is also relevant — What percentage
of consumer transactions in relevant product categories is actually
conducted online? Obviously, the ability to capture information about transactions
assumes that these transactions are actually performed online. Today, very
few consumer transactions are conducted online, although the frequency
and value of these transactions are growing and many providers are building
out consumer transaction capabilities on networks. In part, the rate of
growth of consumer transactions is likely to be a function of the growth
of targeted consumer advertising that is coupled with transaction capability.
In this respect, advertising is likely to lead transactions.
3.5.2 Technology Deployment
Information capture in online environments also depends on
the deployment of an array of technologies focused on measuring, tracking,
collecting, and analysing user activities on the network. Specifically,
Internet-based players are wrestling with two related challenges:
-
How to capture detailed profiles of the activities of users
who come to their Web site?
-
How to tie this information to the identity of specific users
so that they can be proactively identified and targeted with marketing
programs?
With regard to the first, companies, including NetCount and
Inters, are investing aggressively in the technologies necessary to differentiate
"hits" to a Web site from actual visits. In some sense, these companies
aspire, in part, to become the Nielsens of the Internet, and to assist
advertising firms and consumer marketers in improving the effectiveness
and efficiency of advertising in this emerging media. As advertisers have
become aware, hits are an almost meaningless measure of user activity since
they are distorted in a number of ways. For example, accessing a single
web page with four graphics icons stored as separate graphics files on
the Web site will register as five hits on that page even though it was
just one person accessing that page one time.
The nature of the second challenge and the aspirations
of players such as I/PRO and Agents, Inc. are different from those of players
focused on tracking site traffic — that being to strengthen and develop
relationships with individual consumers. The technologies typically involve
creating a unique identifier embedded in the user’s browser software or
establishing some type of third-party registration service. The least attractive
option, but the one most widely used today in the absence of some of the
new user identification technologies or services, involves requiring users
to register at individual Web sites. The technology innovation to address
these needs is well underway today and any of the technologies are already
in an early stage of commercialisation. There will, however, be inevitable
lead times in the deployment of this technology and potential issues regarding
standardization.
There’s a third technology issue, which also bears a mention,
although it applies to only one category of players in the online environment:
those companies who also have significant business presence in traditional
marketing environments. These companies must wrestle with the non-trivial
issue of integrating the information captured in online environments with
the information captured on legacy systems in traditional marketing environments.
3.5.3 Scope of information capture
If the technological hurdles to information capture on the
Internet are likely to be resolved soon, another obstacle may prove more
difficult. This involves the scope of information capture by any individual
company, especially in fragmented network environments like the Internet.
In one extreme view of the Internet, individual product and service vendors
will use the network to dis-intermediate traditional intermediaries and
deal directly with consumers from their own Web sites.
The implications of this scenario for information capture
are profound. In the absence of any aggregating intermediaries, each Web
site will capture a rich profile of the activities on that Web site but,
in most cases, that profile is likely to be a very narrow slice of the
total profile of any consumer’s activity on the Internet. Unless there
is an active market to trade this information across Web sites, the value
of this information will be significantly diminished for all but the largest
vendors. This issue may well lead to the emergence of a broad range of
new, network-based intermediaries who add value by aggregating people and
resources on the network. In this scenario, the value of the information
would be greatly enhanced by the ability to aggregate either across an
individual consumer’s full set of activities or at least across a broad
range of related transactions. Unlike traditional retailers, these new,
network-based aggregators would be able to link these activity profiles
with identifiable consumers who could then be targeted and served with
tailored marketing programs.
3.5.4 The potential impact of privacy concerns
The final hurdle that must be overcome in realising the full
economic value of the information captured in online environments has to
do with privacy. Ironically, this obstacle grows in size as the three prior
challenges are overcome. The greater the reach of online environments,
the more robust the information capture technology platform, and the broader
the scope of information capture by individual companies, the more privacy
is likely to rise as a significant policy issue.
In dealing with concerns over privacy, it is important
to remember a key distinction. When consumers are asked about concerns
over privacy, they invariably express a high degree of concern. However,
when the question is re-framed to test willingness to accept something
of value in return for access to detailed information about the consumer,
respondents seem to become much more favourable to providing the information.
What seems to upset consumers most is when the information is captured
without their knowledge and when they appear to receive nothing in return
for the information. Privacy policies could evolve in a number of directions.
At the two extremes, there may be no restrictions on information capture
or, alternatively, all forms of information capture may be prohibited.
What is much more likely is that privacy policies may require treating
information capture as an option to be chosen by the user. A more modest
resolution would be to allow information capture except in situations where
the user actively takes steps to block information capture. Privacy policies
may differ depending on the category of information involved. For example,
ability to capture information about transaction histories may be more
tightly controlled than information about basic demographics such as age,
sex, and size of family. Similarly, privacy policies may differ depending
on whether the issue is information capture or information liquidity.
For example, one set of privacy concerns deals with the ability of vendors
or intermediaries to capture information about consumers and use this information
in their own business. A very different set of privacy concerns may be
triggered on issues of information liquidity — whether or not the vendor
or intermediary capturing the information can then "sell" this information
to third parties. One quite plausible outcome would be tighter restrictions
on information liquidity than on information capture itself.
3.6 Four Value-Creation Scenarios
These scenarios can be described by focusing on two key dimensions
of uncertainty: the scope of information capture by individual companies
in online environments and the degree of information liquidity.
Figure 3.1: Value Creation Scenarios
3.6.1 The information
toll road scenario
In this scenario, new, network-based intermediaries emerge
who focus on aggregating people and resources in online environments and,
as a result, are well positioned to capture very broad profiles of consumer
activities on the network. The scope of information capture by individual
companies — i.e., these new intermediaries — is therefore quite high. In
contrast, information liquidity — the ability to buy and sell this information
to others — is assumed to be very low as a result of privacy concerns over
potential abuses of information. As a result, the intermediaries are well
positioned to become organisers of customer webs, leveraging the unique
asset that they accumulate over time: the rich activity profiles of the
customers they aggregate. Unable to "sell" their profiles to third parties,
the intermediaries become natural channels for interactive advertising
and shopping, providing opportunities for third parties to leverage the
customer profiles without actually "acquiring" them and, in the process,
further enriching these profiles based on the next wave of consumer activity.
These customer profiles have substantial commercial value and it is likely
that the intermediaries who own them would end up capturing the bulk of
the value-creation potential. Distinct sub-scenarios can be defined by
focusing on the potential roles of categories of intermediaries (e.g.,
virtual communities, electronic market makers, gateways, and network access
providers, billing/payment service providers).
3.6.2 The information fragmentation scenario
A second scenario imagines that information capture is quite
fragmented on networks — no entity is able to capture more than a very
narrow slice of a user’s activity profile online — and that information
liquidity is also low. Under these conditions, the potential for value
creation through information capture in online environments is likely to
be low and fragmented among many players. This scenario favours the very
large vendors of products and services who are better able to capture information
about their customers online. These vendors can then treat this information
as a distinctive asset that reinforces their competitive advantage.
3.6.3 The information integrator scenario
A third scenario also assumes that information capture is
fragmented on networks, but that information liquidity is high. Under these
conditions, one might expect to see the emergence of specialised information
integrators that would collect the information captured in many different
locations and aggregate this information into integrated customer activity
profiles. In this scenario, the value creation potential of the integrated
profiles would be high and the ability to capture this value creation potential
would depend upon the concentration of information integrators relative
to information capturers and information customers. Hence, a value-maximising
extreme might see few large integrators — with many collection points and
sophisticated integration tools — compiling and brokering highly comprehensive
consumer profiles. This scenario would tend to favour smaller vendors of
products and services on the network who would have increased access to
a broader range of information about potential customers. More generally,
this scenario would favour companies who are very skilled in the application
of customer information to improve marketing programs.
3.6.4 The customer control scenario
In this scenario, privacy concerns dictate that the customers
themselves become the primary location of information capture and therefore
"owners" of the information captured. Information capture could occur through
software installed as a plug-in to the browser residing on the customer’s
PC. As the customer navigates through the network, the activity profile
is automatically and transparently captured by the customer’s software.
This information could then be managed by a new form of information intermediary
who acts as an agent for the customer, providing a variety of filtering,
vendor seeking, and information "rental" services that optimize the value
of the customer profile to the customer, consistent with the customer’s
privacy preferences. Under this scenario, the value creation is quite high
because the profiles are rich and comprehensive for individual customers
and the customer is in the best position to capture the value creation
potential inherent in these profiles.
This scenario would represent a fundamental shift from
traditional information capture roles in physical space. Traditionally,
consumers’ roles have been limited to providing data about themselves through
surveys, transactions, etc. In the customer control scenario, consumers
would become key collectors and controllers of primary information, potentially
obviating the need for information capturers and, in the process, staking
an important piece of the value chain. As a result, the value-added roles
of other players would shift toward data integration and analysis and away
from information capture.
3.7 Explicit Information Capture Strategies
3.7.1 Targeting high-value information
The key issue here is: What kind of information about customers
(and potential customers) is most valuable to your business? For example,
many consumer businesses aspire to establish long-term relationships with
customers and therefore value profiles of transaction histories to provide
a measure of the economic potential of that customer. This focus is especially
important when the consumer makes repeated purchases of specific products
or services over a long period of time. However, such a focus may not be
as relevant for a residential real estate broker who is more concerned
about information that would suggest a particular person or family is about
to enter the housing market. Similarly, leading vendors in specific markets
are more likely to place higher value on an increased amount of information
about their own customers to strengthen customer retention programs or
to better identify cross-selling opportunities. In contrast, new entrants
focused on customer acquisition will be more focused on information about
the broader market rather than their own customers. Being explicit about
what kind of information has the greatest value can be very helpful in
developing more targeted and cost-effective information capture and acquisition
strategies.
3.7.2 Capturing high-value information
Once you have a clear focus on the information that is most
valuable to the business, the key challenge is to assess the relative importance
of online environments in facilitating capture of this information and
the specific approaches best suited to exploiting the potential of online
environments as a capture medium
-
What is the relative ability of online environments to capture
this information more quickly and cost effectively compared with traditional
marketing environments?
-
What kinds of online business models and technology platforms
are most useful to exploit the potential of online environments in capturing
this information?
The temptation here is to focus too much on technology platforms
without adequately considering business models and their impact on the
scope of information capture. Traditional business models may be much too
constrained in terms of exploiting information capture potential.
3.7.3 Leveraging the value of information capture
This is perhaps the biggest challenge to senior management.
Even in traditional market environments, a large and growing gap has emerged
between the amount of information actually captured or readily available
for capture and the actual use of this information to create economic value.
Technology barriers (i.e., the limitations of legacy systems), skill barriers
(i.e., the data mining, analytical and marketing skills required to apply
the information in the marketplace) and organizational barriers (i.e.,
"smokestack" functional or product organizations that limit the ability
to share information across organizational boundaries) are all responsible
for this gap.
Senior management must avoid the temptation to focus on
information capture issues while under-managing the major challenges involved
in leveraging the value of this information. Addressing the following questions
may help:
-
What will be required to integrate the information captured
online with other customer information captured in traditional marketing
environments?
-
What skills will be required to leverage the economic value
inherent in the information captured?
-
What changes to organizational structures and incentive systems
may be required to more effectively leverage the value of information across
organizational boundaries?
-
What information capture and information sharing policies
will be required to maximise the economic value to your company while at
the same time protecting the privacy concerns of your customers (and potential
customers)?
-
What kinds of new partnerships/relationships and contractual
terms and conditions might be required to maximise the value capture potential
for you while reducing the risk that broader access to this information
might undermine the value of your core business?
One key question senior management needs to address is who
else might be in a position to capture this information in an online environment
(including the customers themselves) and what are the implications for
your business? Here, the risk is that senior management takes too narrow
a view of potential competitors for high-value information. While focusing
on existing competitors in traditional market environments is important,
it is essential to remain alert to the implications of new, network-based
intermediaries who may be in a position to capture a much broader scope
of information.
At the extreme, customers themselves may become competitors
for information about themselves. If they succeed in establishing ownership
rights to this information, the implications for existing businesses could
be dramatic. Virtual space offers the potential to fundamentally alter
who captures what kinds of information about customers. Properly understood,
online market-spaces offer significant opportunity to create new value
based on a deeper insight into customers and their activities and preferences.
Larger companies in particular must carefully think through the implications
of broader and deeper access to information about customers. Many companies
today enjoy a significant advantage resulting from unique access to limited
information about their own customers. These advantages may be under attack
by new entrants who leverage the powerful information capture potential
of online environments to level the playing field or, even worse, to shift
the balance of information power to create new kinds of advantaged players
on that playing field.
4.0 EMERGING STRATEGIES FOR E-COMMERCE
Electronic commerce is fulfilling its early promise for business-to-business
trade. Marketplaces that connect buyers and sellers are up and running
in many product categories, and are creating value by making trading more
efficient. The rewards are split in three ways. Sellers can reach more
customers, gather better information about them, target them more effectively,
and serve them better. The marketplaces also create value for the third-party
intermediaries that organise some of them. Intermediaries can earn transaction
commissions and fees for value-added services such as information capture
and analysis, order and payment processing, the integration of buyers’
and sellers’ IT systems, and consulting services. The best rewards go to
buyers, however. Able to compare products and prices easily, they will
compel suppliers to compete more fiercely than ever.
There are three types of marketplace: those controlled
by sellers, those controlled by buyers, and those controlled by neutral
third parties as shown in the table below:
Seller Controlled |
-
Information-only vendor Web sites
-
Vendor Web sites with online ordering
|
Buyer Controlled |
-
Web site procurement posting
-
Purchasing Agents
-
Purchasing Aggregators
|
Neutral (Intermediaries) |
-
Industry/product-specific search engines
-
Information Marts (Structured access to vendor and product
information)
-
Business malls (multiple vendor store fronts)
-
Auction spaces
|
Table 4.1: Types of Market Places
Marketplaces controlled by sellers are usually
set up by a single vendor seeking many buyers. Their aim is to create or
retain value and market power in any transaction. The corporate Web site
set up by Cisco Systems, for example, enables buyers to configure their
own routers, check lead times, prices, and order and shipping status, and
confer with technical experts. The site generates $3 billion in sales a
year — about 40 percent of the company’s total.
In addition, by publishing technical documents on line
and giving customers access to order information, Cisco saves $270 million
annually in printing expenses, order and configuration errors, and telephone-based
technical support. Its online market may also increase customer loyalty
by speeding up ordering and order status checking. Buyer-controlled marketplaces
are set up by or for one or more buyers with the aim of shifting power
and value in the marketplace to the buyer’s side. Many involve an intermediary,
but some particularly strong buyers have developed marketplaces for themselves.
Japan Airlines, a big purchaser of in-flight consumable items such as plastic
rubbish bags and disposable cups, posts procurement notices on line in
order to find the most attractive suppliers.
Buyers’ intermediaries act as agents or aggregators.
FreeMarkets Online, a small company that helps traditional industrial firms
locate a pool of competitive suppliers for semi-complex assembly parts
such as plastic injection mouldings and iron castings, is an example of
an agent. First, it offers an offline consulting service to refine the
buyer’s specifications and screen potential suppliers. When the best contenders
have been identified, it sets up and conducts an online bidding session,
which can last for up to three hours. The service offers buyers average
price savings of 10 to 25 percent, and helps them buy more effectively
because suppliers submit bids that better match their needs.
Aggregators take a different approach, combining
the purchases of several companies to increase their collective buying
power. TPN Register, a joint venture between GE Information Services and
Thomas Publishing, grew out of an initiative within GE to consolidate purchases,
first within a single division (GE Lighting), then across all divisions.
Finally, it expanded beyond GE to include other leading corporations in
a buying consortium. The results have been a reduction in order processing
time (from a week to one day for GE Lighting) and processing costs, and
10 to 15 percent lower prices. Forrester Research estimated that from its
inception in January 1997 through year-end, TPN Register’s purchases would
reach $1 billion.2 The marketplace expects to handle purchases worth $15
billion by the end of 1998.
Neutral marketplaces are set up by third-party
intermediaries to match many buyers to many sellers. One such intermediary
is FastParts, which operates an anonymous spot market for the trading of
overstocked electronic components. It receives notice of available stock
from sellers, then matches buyers to sellers at an online auction. All
parties benefit. Sellers get higher prices than they would through a traditional
broker; buyers get market-driven prices that are lower than brokers’, plus
guaranteed quality because FastParts inspects the products; and FastParts
earns up to 8 percent commission. The losers are the traditional brokers.
Neutral electronic marketplaces do not necessarily eliminate
traditional intermediaries, however. Digital Markets established itself
as an electronic intermediary for the trading of electronic components.
Its aim was not to change the relationship between buyers and sellers,
but to make their transactions more efficient. Its online marketplace routes
buyers’ orders to their preferred distributors after checking for order
entry errors and suggesting substitute products. The intermediary then
notifies the buyer of availability and passes on delivery and pricing information
from the seller. Digital Markets also enables buyers to confirm and track
their orders. For this service, it charges a transaction fee to sellers
when an order is placed. Buyers pay nothing.
4.1 Choosing A Marketplace Model
How should companies decide which electronic marketplace
model suits them best or, indeed, evaluate when or whether to participate
in a market? The answers to the following four questions will help them
determine an appropriate strategy.
4.1.1 Are there transaction savings or benefits to be
realised?
Cost reduction through greater process efficiency is one
of the main attractions of the electronic marketplace. Companies should
therefore conduct a detailed analysis of their selling and procurement
processes to discover how much can be saved and where. In early electronic
marketplaces, most companies have focused on reducing the cost of publishing
and distributing printed documents by making promotional materials available
on Web sites. DEC estimates that putting its promotional materials on line
is saving $4.5 million annually in catalogue and mailing costs.
Yet there are many other steps in a typical selling and
procurement system that can be streamlined. From product development to
account information management on the selling side, and from assembling
manufacturing specifications to tracking vendors’ performance on the procurement
side, electronic marketplaces can have a measurable impact. How much of
an impact depends on how lean the buying and selling operation already
is. At Dell, many process costs had already been taken out via direct sales
and by earlier efforts to automate and streamline the supply chain. Web
selling has secured additional savings, but they have been small compared
with what most companies could expect — including other competitors in
the PC business. A second type of transaction benefit is improved reach.
Hartford Computers has clearly benefited in this way, quadrupling sales
by reaching more divisions of GE via TPN Register. A third advantage accrues
for buyers: namely, the reduction in prices that comes of increased or
more transparent competition.
4.1.2 Is an electronic market for our product developing
quickly?
The higher the possible savings or benefits, the more enthusiastic
competitors are likely to be about an electronic marketplace. But these
are not the only concerns. If electronic markets are developing quickly
for a company’s key product categories, then competitive dynamics might
drive it to establish an early presence whether it is a buyer or a seller.
The speed with which an electronic market develops for
any product will depend on two factors: the inefficiency of current transactions
and the sophistication of buyers as shown in the figure below:
Figure 4.1: Opportunities for Electronic Marketplaces
Transaction inefficiencies can arise from poor information
flow, complex or multi-tiered distribution channels, and fragmented supplier
and customer bases, among other factors. Customers’ sophistication is measured
by their ability to define clear product specifications, their understanding
of the differences between vendors, and how comfortable they are about
buying a product without seeing it.
Product categories with inefficient transaction processes
and sophisticated customers, such as MRO products, PCs, travel services,
and low-end networking products, will probably move quickly to electronic
marketplaces. Dell, for example, is already seeing the emergence of several
electronic marketplaces for PCs, such as pcOrder.com, ECadvantage, and
ONSALE. Because the company moved quickly to develop its own online sales
site, it should at least slow the pace at which customers are attracted
to other marketplaces, and hence defer (perhaps indefinitely) the erosion
of its market share and price advantage. Buyers in fast-moving product
categories should use electronic marketplaces to save money on the goods
they buy, while sellers should seize the opportunity to reach new customers
and delay the development of a buyer-controlled marketplace. Third parties
should act promptly to attract a critical mass of buyers and sellers to
their own marketplace.
4.1.3 Do we have substantial market share or buying power?
The answer to this question will determine which marketplace
model will be most effective.
If a product stands out from competitors and is strongly
branded, its maker should consider selling from its own Web site. Cisco
is the clear market leader in routers, for example, and can therefore depend
on its brand alone to draw customers to its site. The seller of a product
with a weaker market position, on the other hand, should probably try to
enter several marketplaces in order to broaden its reach.
Buyers’ competitive considerations are slightly different.
Here the key variables are the size of procurement expenditure by product,
and the fragmentation of the supplier base. Large buyers in product categories
with legions of suppliers will probably choose to set up their own procurement
site, or use a purchase aggregator to increase their buying power even
more. Aggregators also make good sense for most small buyers. If none exists,
small buyers with a large number of potential suppliers should use business
malls (multiple vendor storefronts) to access suppliers easily, or preferably
find auctions where intense competition between suppliers might result
in lower prices.
4.1.4 Would a neutral intermediary be beneficial?
From a buyer’s or seller’s point of view, there are several
reasons why marketplaces run by a neutral intermediary might be beneficial.
The first is the advantage of scale in transaction processing. An electronic
marketplace that sells nothing but caviar, say, may have insufficient volume
to achieve scale in its back-office organization. But a marketplace that
sells all kinds of gourmet food could be much more efficient. Similarly,
a marketplace able to use the same technology to set up markets in different
products would probably have a sizeable cost advantage over marketplaces
tied to single products or industries. The advantages of scale are therefore
likely to drive the emergence of third-party, neutral marketplaces that
not only bring buyers and sellers together, but can act as service bureau’s,
providing facilities such as customer data analysis, payment processing,
and fulfilment/logistics. A second factor is the value of the information
acquired during buying and selling. Here, the benefits will be enjoyed
by the intermediary. A neutral third party can accumulate information about
buying patterns that can be analysed and sold to sellers to help them improve
their marketing. This is unlikely to happen in a buyer- or seller-controlled
marketplace, as the controlling party has little incentive to pass information
on. A third reason is anonymity. Companies’ concerns about giving competitors
access to sensitive information through their Web sites are allayed in
a neutral market in which participants’ identities are protected. Much
of FastParts’ success is based on the value of this anonymity to electronic
component manufacturers, which do not want to reveal details of their production
levels or excess capacity. In product markets where anonymity is important,
buyers and sellers alike will flock to neutral marketplaces. Finally, neutral
intermediaries can be helpful because they understand how Internet marketplaces
operate. This is a new channel that demands specific skills and experience.
Savvy intermediaries can help market participants move up the learning
curve quickly.
4.2 Rules For Winning
The development of electronic marketplaces is inevitable
in many if not most industries. It will be driven by the release of value
through transaction savings and the shift of power to buyers.
For buyers, the strategic imperative is clear. They have
little to lose and much to gain. They could, however, be in danger of falling
captive to a seller-controlled marketplace capable of analysing their buying
patterns to extract additional economic surplus. Buyers should therefore
organise a buyer-controlled marketplace as quickly as possible. The dynamics
of electronic marketplaces also create clear opportunities for third-party
intermediaries, which can create value by virtue of their neutrality. Their
strategy will be guided by the answers to the same four questions that
buyers and sellers must ask. They need to ascertain where transaction savings
can best be realised in order to know how to integrate their service with
buyers’ and sellers’ sales processes, and so offer most value; they must
pick industries that are early targets for electronic marketplaces; they
should avoid industries where sellers or buyers are particularly powerful;
and they should consider areas where there is value in anonymity or in
the information derived from transactions.
Sellers are the most vulnerable participants, because
they will increasingly have to compete with other vendors in a transparent
environment. Unless a seller stands to gain substantially from increased
reach or reduced transaction costs, its strategy must be to attempt to
coopt or prevent the formation of buyer-controlled markets capable of driving
down margins to the lowest-cost producer. This can be done by quickly setting
up seller-controlled marketplaces.
All participants may have to re-examine conventional assumptions
about competition. A seller such as Dell could find that the right strategy
is to open up its Web site to competitors’ products — surrendering some
sales in order to retain control over the marketplace. A neutral party
will probably discover that it cannot merely organise and operate the marketplace;
instead, it must quickly integrate into buyers’ and sellers’ transactions
and systems to enable full process savings and capture valuable information.
Finally, buyers may find that they should cooperate with unfamiliar players
(for example, purchasers of the same product in a different industry) to
maximise their gains, pooling purchases, say, to exert as much control
as possible over suppliers. The dynamics and rapid growth of electronic
marketplaces are forcing businesses to choose their strategies now. Electronic
business-to-business commerce is not simply a question of automating existing
channels and processes. It is a whole new way of doing business.
5.0 CONCLUSIONS
In this paper we have discussed the broad parameters of developing
an effective marketing strategy for the emerging business model i.e. the
internet.
We have tried to present a view of the changing consumer
needs over the next decade This need has been propelled by a variety of
reasons -–technology being the main driver. In such a scenario most of
the marketing models that were valid in the world of gravitational commerce
will not work in the electronic commerce. We have just explored one particular
area of research in the new paradigm of marketing that needs to be adopted
to cope up with the fast changes taking place in this arena.
We see that the marketing strategy evolves around the
consumer as shown in the diagram below:
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We first discussed the changing trends in consumer behaviour.
We started by asking us the most fundamental question: What is marketing?
We found that marketing was something that has to satisfy the consumer
whether by product, by delivery of the product or otherwise.
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Then we tried to find out, how this marketing paradigm is
affected. This is affected by the changes in consumer behaviour. Marketing’s
essential task is to satisfy the consumer. If the consumer changes his
preferences then marketing must change its models appropriately to deliver
the value to the consumer. Towards this end we tried to examine some of
the global trends in consumer behaviour and how these may affect marketing.
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What is e-commerce and what is e-marketing? was our next
focus. We see that e-commerce is a paradigm where we are changing the way
the consumer is delivered the product.
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We then next go on to discuss the role of information and
how information can be captured in this marketplace.
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In the end we present an analytical framework for e-commerce
for different industries. This framework underlines the strategies of a
company which is going for e-commerce.