In January, 1999, @Home bought eXcite for $6.7 billion the same month that Ford bought Volvo automotive for $6.5 billioni, believe it or not. Meanwhile, Amazon.com's market cap reached $25 billion in December 1998, topping J.C. Penney and Kmart combined. What is actually going on here? Patricia B. Seybold proclaims, "It's the customer, stupidii."
Successful customer relationship management is the competitive advantage of the Information Age and is the bottom-line for market leadership. As marketing guru Regis McKenna explains, "It's about giving customers what they want, when, where, and how they want it.iii" The power shift from producer to consumer is well underway, made possible by the capability to use the Internet to learn about individual buying patterns to customize offerings that delight the customer. Customer information is the currency of success in the 21st century marketplace.
Although Amazon.com bills itself as "earth's biggest bookstore," its eyes are on the real prize, "earth's biggest customer database," a database containing not just customer names, addresses, balances and such. The critical information in Amazon.com's database is buying behavior encoded and stored as electronic bits. Amazon.com has already moved into selling music, videos, toys, games and electronics, but the company's potential breakout is its recently acquired Junglee and PlanetAll. "We want to be a leading destination for e-commerce where people can buy almost anything they want to buy on the Net," said spokesman Bill Curry, repeating a goal that Amazon CEO Jeff Bezos outlined when it acquiredJungleeiv. A new Junglee-enabled shopping experience on Amazon.com called Shop the Web is intended to be the place to find anything customers want to buy online. The new shopping "bot" would make it easy to find and compare products from a number of merchants all at once, turning Amazon.com into a vortex on the Web, an electronic market that brings together a fragmented group of buyers with an equally fragmented group of sellers. Of course, merchants may not want such comparison shopping, and it is too early to determine if the service will succeed. The experiment does, however, hint at the new business models emerging on the Web.
Selling products on the Web is not the company's only customer acquisition technique. Amazon.com's PlanetAll provides 1,500,000 members all they need to keep up with important personal and professional contacts. They make it simple, with a self-updating address book, a Web-enabled calendar and individual discussion groups that each member can create. Of course, when PlanetAll electronically reminds a member of a special occasion, any one of the 15 million items in the Junglee Shopping Guide just so happens to be a mouse-click away. Just as department stores aggregated goods for one stop convenience, Amazon.com's aggregation of buyers and sellers could make it "earth's biggest vortex," bringing together all buyers and all sellers of everything, everywhere!
The same kind of prize is the goal of the business-to-business marketspace as well. Vertical.net has jumped ahead of the pack in establishing industrial communities-of-interest, and early entrants into the business procurement markets such as Ariba and Commerce One are changing their business models from selling procurement software to establishing multi-seller, multi-buyer procurement marketplaces similar to GE's Trading Process Network (TPN). Thus in both business-to-consumer and business-to-business markets, owning the customer, the whole customer, is the ultimate prize of 21st century business. Instead of owning the product and pushing it to market segments, Internet Age companies will seek to position themselves directly in the path of greatly empowered customers as they pull products and services from a multitude of suppliers to meet their individual needs. As control of markets and economies shifts from the producer to the consumer, the secret is to customize offerings, one customer at a time. Caveat Venditor ( seller beware!
There is no magic in owning customers. The new marketing maxim is just give them what they want, when and where they want it. Capturing and analyzing information about buying behavior is the key. Knowing what the customer wants, however, is not enough. Buying processes are complex. Empowered by the Internet, customers demand and will tolerate nothing less than buying experiences that delight. Although the business concept of providing a full spectrum of individualized goods and services, one customer at a time, is simple, its implementation is not. Unless a company starts in a green field as did Amazon.com, nothing less than business transformation is required. The transformation involves the three pillars of any business: technology, process and people. The initial step in transforming these fundamental assets is to gain a solid understanding of how the Internet changes everything by making it possible to do things that were never before possible.
Business transformation to the world of e-Commerce is not a single event. Instead it is an ongoing journey. Strategy must recognize and navigate the many pitfalls and obstacles. As Tilburg University's Infolab points out, "Although e-Commerce aims at supporting the complete external business process, including the information stage (electronic marketing, networking), the negotiation stage (electronic markets), the fulfillment (order process, electronic payment), and the satisfaction stage (after sales support), currently, e-Commerce is hampered by:
* closed (self-contained) markets that cannot use each other's services * incompatible frameworks that cannot interoperate or build upon each other * a bewildering collection of security and payment protocols * use of inadequate techniques to model business requirements and enterprise policies.v"
Successful e-Commerce strategy charts a path for optimizing the business return now and stays the course as the world of e-Commerce evolves and matures. Strategy is about building bridges to open markets and optimizing value-chains for those markets. Successful e-Commerce strategy must be guided by a solid understanding of how the Internet changes the world of business.
HOW THE INTERNET CHANGES BUSINESS
The railroad, the automobile and the Interstate highway system all changed the business landscape and the economy. Now, the Internet changes both "what we do," and "how we do it." What does the Internet allow a business to do that was never before possible? How does the Internet fundamentally change the landscape? The answer is simple, yet profound. The Internet enables business ubiquity, allowing a company to conduct business everywhere, all the time. E-Commerce eliminates the constraints of time and distance in operating a business.
Just as the computer itself demarcated the end of the Industrial Age and heralded in the Information Age, e-Commerce heralds a new age of ubiquitous business. It moves on from Sun Microsystems' slogan, "The network is the computer(tm)" to "The network is the business." Not only can the Internet make company information available worldwide, it can distribute an enterprise's business rules and processes in real-time. All the information, business processes and control needed to transact business can flow friction-free anywhere, anytime to customers, suppliers and trading partners. E-Commerce enables a multitude of connections between customers, suppliers and trading partners: process-to-process connections between servers, browser-server connections and a growing number of network-savvy information appliances (e.g. cell phones, pagers, palm tops, WebTV, fax) ( all the current and future business touch points. Technology such as Sun Microsystems' Jini(tm) will extend further the list of information appliances and devices that can plug-and-play on the Internet.
Business ubiquity is an interesting phenomenon in and of itself, but of immediate interest here is how this phenomenon changes the way businesses operate and what they do. The following brief descriptions provide a glimpse into the major shifts occurring and the business imperatives inherent in these changes.
Power Shift to the Customer
Technology is not neutral. Disruptive technologies tend to cause shifts in power. Information is power. Authoritarian societies rely on one-way, hierarchical information flows where information flows down, from one-to-many. Democracies rely on matrixed forms of communication that provide many-to-many information flows. In the Industrial Age, information flowed one-way, from the producer to customers in a one-to-many fashion. In the Information Age the Internet provides the many-to-many connections among customers. The Internet turns the producer-consumer relationship upside-down with the balance of power going to the customer, enabling the Customer Age.
Enlightened companies are scrambling to shift from being product-centric to customer-centric. Industrial economies were build on the mass production business model. Companies built products and "pushed" those products using one-way communication (advertising and mass media) to markets. Enabled by the totally interactive medium of the Internet, consumers can now "pull" the information they want about products and reach out to all sources instantly. This information is power, and fulfills one of the tenets of pure competition, a totally informed consumer. "Fully informed" means access to information from other consumers as well as information in the supply channels.
E-Commerce is about reengineering end-to-end customer processes. Reengineering customer processes means eliminating costs, aggregating all the resources (not just products) needed for a complete solution, reducing time, and eliminating steps where possible. Producers of goods and services must build consumer communities of interest and provide full service consumer processes ( or someone else will.
Reaching out to the ultimate consumer applies to business-to-business markets as well as business-to-consumer markets. A key dimension of business-to-business e-Commerce is that the consumer of a product is usually not the one who actually does the purchasing. Thus the customer is actually two entities: the one who requisitions, receives and often recommends, and the one who actually places the order, the purchasing agent. Selling strategies in business-to-business markets must take this structure into account. The seller must find ways to reach the ultimate consumer who most likely turns out to be the person who does the recommending. A purchasing agent may be a selling company's customer of record, but the focus of e-Commerce offerings must be targeted at the ultimate consumer, the requisitioner.
E-Commerce Imperative: The price of entry to the digital economy is the fundamental shift from being a product-centric to a customer-centric company. The company that engineers customer processes that delight will win the battles for 21st century markets.
Global Sales Channel
It is the World Wide Web. The Internet allows even the smallest of businesses to establish a global presence. The Net levels the playing field for the huge corporation and the sole proprietor alike. As a result, many specialty markets will appear for the first time as even the smallest of businesses now have the ability to reach geographically dispersed markets that would have otherwise been cost prohibitive to consider. Reaching global markets, however, can be a daunting task involving multiple languages, legal systems and business cultures.
On the reverse side of the coin, companies can expect new entrants into their local markets. These new entrants can appear from anywhere, at anytime. Market leaders must never rest as they compete in the global marketplace.
E-Commerce Imperative: The Internet diminishes the importance of geographic market territories because it allows anyone from anywhere to enter any market. Even though a company's current market may be local, regional, or national, strategic planning for e-Commerce must include the global potential and perspective, and consider new entrants into its current market territories.
Reduced Costs of Buying and Selling
Variable costs for online catalogs are near zero, whether a catalog is viewed by one potential customer or millions. Although designing and creating an online catalog can be as costly or even more so than a print catalog, printing and distribution costs are nil. Further, by automating the sales transaction, the high cost of labor can be significantly reduced. A direct sales force, call centers and mail order channels are manpower intensive and expensive. Direct selling online can be simple, "see-buy-get," as in the case of ordering a book with a credit card, or complex, "see-configure- negotiate-contract-fulfill-settle." In both cases, the cost of the sales transaction can be significantly reduced through online automation.
Physical inventories have always been a major cost component of business. If a merchant's business model requires maintaining inventories, the classic goal of "turn" can be dramatically enhanced by directly linking to suppliers. In his new book Direct from Dell: Strategies That Revolutionized an Industry, Michael Dell explains, "Inventory velocity has become a passion for us. In 1993, we had $2.9 billion in sales and $220 million in inventory. Four years later, we posted $12.3 billion in sales and had inventory of $233 million. We're now down to less than eight days of inventory and we're starting to measure it in hours instead of days.vi"
In the physical world, Wal Mart set the example of just-in-time inventories by outsourcing inventory control directly to its major suppliers in real-time. On the Net, companies such as Amazon.com were started with zero or minimal inventories as wholesalers Baker and Taylor and Ingram drop shipped Amazon.com orders directly to the customer (This story, however, is not complete and continues under the Logistics and Physical Distribution section below).
E-Commerce Imperative: The Internet provides a target-rich environment for radically reducing the costs of buying and selling goods and services. A company must take advantage of these opportunities or find itself at a significant competitive disadvantage.
Converging Touch Points
The Internet is much more than the World Wide Web and a browser. For example, Internet protocols are being used to integrate telephony, and leading companies have already integrated their call centers into their e-Commerce offerings. New technologies such as Sun Microsystems' Jini(tm) promise to put every machine in touch with every machine, opening up a bewildering array of ways of making connections on the Internet.
With the advent of the "road warrior," a growing part of the workforce is mobile and using all sorts of marvelous gadgetry to stay in touch and to transact business. The continuous stream of innovation in electronic devices and gadgets will continue: the palm top, the lap top, the cell phone, the PDA, the fax, the pager, IP telephony, email, digital postal mail, kiosks, and so on. A mobile workforce demands mobile computing and access to e-Commerce resources regardless of the medium used to gain access.
These same touch points equate to new sources of customer information. Increasingly rich customer information, in turn, allows a company to analyze customer buying behavior and customize its offerings to individual customers.
E-Commerce Imperative: E-Commerce applications and systems must be available to all customer, supplier and trading partner touch points (including their computer systems), not just their Web browsers. Access must be made available to the mobile workforce and customers regardless of device or location of the user.
Always Open for Business
Doing business on the Net means never closing up shop. The open sign is displayed 7x24x365, no holidays. A Web site follows the sun, greeting markets as they arise each day in Tokyo, then Hong Kong, and later in Riyadh and Johannesburg, then London, New York and on to San Francisco. The good news is that a "digital sales staff" works around the clock without demanding overtime. The sobering news is that e-Commerce systems require availability and reliability that can be achieved only through much effort and investment. These are lessons learned from Net auctioneer, eBay, as reflected in CNET News.comvii headlines:
* eBay outage a one-two punch, November 3, 1998 * Auction site eBay hiccups again, December 9, 1998 * eBay suffers prolonged outage, May 3, 1999 * eBay recovers after outage, May 21, 1999 * eBay blacks out yet again, June 13, 1999 (the company's stock dropped 9.2% that day) * Outages plague eBay again, June 29, 1999
The company said the outages cut 1999 revenues by $3 million to $5 million in the second quarter.
Not only must an e-Commerce system be technically reliable, it must also be dynamically scalable so that it can withstand the "stampedes" that are frequently associated with breaking news and product announcements. Even without a stampede, speed is important. A report released in July, 1999, Zona Research reveals that "Slow download times at online shopping sites could place at risk as much as $4.35 billion in U.S. e-Commerce revenues each year. Analysts estimated that online shoppers would wait up to 8 seconds for a site to download. The sales risk crosses all types of sites. For example, an estimated $3 million may be lost monthly due to slow securities-trading sites.viii"
E-Commerce Imperative: The non-stop, mission-critical nature of e-Commerce demands non-stop systems and network assets. Redundancy, scalability and fail safe must be built into all components of e-Commerce systems and the platforms on which they run.
In some cases, lag time from product development to market availability can be reduced to zero. In fact, Microsoft and other software manufacturers reach their markets prior to complete product development. Customers use their products before they are actually released. Beta versions of software products are downloaded free by customers. The result is that the customer actually becomes involved in product development. Because people prefer what they already know, the customer gets hooked on the Beta version of a product, and it takes just one micro-step to convert Beta users to paying customers.
E-Commerce Imperative: Time-to-market is no longer a competitive advantage; it is a competitive necessity. Through collaborative product development and knowledge sharing, time-to-market can and must be successfully managed.
Enriched Buying Experience
Not only can a Web site offer a rich multimedia presentation of a product's attributes and qualities (test drive a new minivan from the comfort of home), but tools also can be made available to assist the customer in the buying process (e.g. calculating monthly payments or configuring a custom PC). In addition, Chat rooms and discussion groups can afford the opportunity for customers to share their product or service experiences with others. In this way, a potential buyer can learn from the experience of others who have been interested in, bought, and used a particular product or service. These interactive capabilities are especially useful for buying specialty goods where purchasing decisions have many dimensions and involve multi-step processes. By providing calculation, configuration and collaboration tools, a Web site can create communities-of-interest where consumers go first to become informed about purchasing decisions.
In business-to-business markets, product configurators, computer-aided design (CAD) systems, and collaborative problem-solving tools can bring dramatic productivity increases to the design, development, and procurement of complex products and services. Large-scale and complex projects can be transformed by sharing product specifications, bills-of-material and production schedules across many suppliers and trading partners in real-time. As bandwidth increases, the use of virtual reality technologies will no doubt be used to further enhance both consumer and business buying experiences.
E-Commerce Imperative: The Internet allows a company to greatly enhance the buying experience through value added services such as collaboration, building communities-of-interest, and multimedia renderings of complex product information. Providing an enhanced buying experience is essential to any e-Commerce strategy.
When a company interacts electronically with customers, buying behavior can be analyzed so that the company can customize its product and service offerings to the individual customer ( this is the essence of the one-to-one marketing revolution. Customization provides value to customers by allowing them to find solutions that better fit their needs and by saving them time in searching for their solutions. Instead of presenting a huge catalog to a given customer to sift through, custom catalogs can be presented, one customer at a time. Not only can a solution be pinpointed for a customer, but also, the greater the relationship grows, the more a business knows about individual buying behavior. This rich customer information opens a multitude cross-selling and up-selling opportunities.
With the Net, the savvy marketer can sense and respond to customer needs in real-time, one-to-one. In addition to demographics, the electronic marketer can track biographics: the life passages and temporal and long-term interests of the individual. For example, buying one's first home is a life passage that will lead the marketer to target the consumer for a range of products and services from life insurance to home furnishings.
E-Commerce Imperative: Customization is a cornerstone for building a customer-centric company. The ability to deliver customized goods and services is the basis of the one-to-one marketing revolution and the shift from mass production to mass customization.
The Net can simultaneously cut the costs of customer service while increasing its quality. While customer service is the byword of marketing (what company doesn't give customer service lip service in its sales pitch?) the reality is often a frustrated user who must navigate call center menus that lead to intolerable on-holds or, finally, a human who abruptly tells the customer to call another number in another department. Automating customer service through a single enterprise access point (portal) can put the customer in control of navigating the company's service resources. With the integration of the telephone and the Net, the possibilities of making the company fully accessible increase further. While giving the customer greater control, labor costs can be slashed since the number of customer service representatives can be reduced as a result of outsourcing customer service to the customers themselves. Just as it is with gasoline stations today, an increasing number of customers will go to the self-service lane on the information highway.
E-Commerce Imperative: Self-service allows the customer to do for themselves, potentially yielding a result of greater satisfaction and reduced cost.
Reduced Barriers of Market Entry
Reduced cost of entry into electronic markets is both a benefit and a cause for concern. Just about anyone can enter a market or industry. New entrants can be successful if they can discover and deliver unique value to customers. But they had better not look over their shoulders as once their unique value proposition is discovered by their competitors, replication is sure to follow. A constant stream of innovation is required to sustain competitive advantage.
E-Commerce Imperative: A company cannot rest after introducing an innovative e-Commerce offering. Competitive replication is soon to follow, and the originator must raise the bar if it is to remain out front of its competition.
Demographics of the Internet User
Neilsen Media Research and other organizations research demographics on the Net providing information such as age, income, sex and geography. Early users of the Internet are categorized as young, male and educated. They have a median income about 50% higher than the general U.S. population. On the other hand, as the Net becomes mainstream and access becomes more universal with WebTV, Web enabled telephones and other information appliances, demographics and usage will become more normative. For example, when the Apple iMac was introduced in August 1998 it was snapped up by first time computer users who perceived the device as so simple that they too could join the Information Age.
Understanding shifting demographics is important in electronic marketing since the overall size of electronic retailing has not even come close to critical mass when compared to the total consumer market. Niche companies may enter the market now to ride the tide when it comes in, but they should not expect to make money on the Web the day they open for business. Build it and maybe they will come. Because the Net is by no means mainstream in consumer markets, hanging out a retail shingle certainly does not mean they will come. The benefits offered by e-Commerce do not simply accrue by establishing a Web site.
Demographics go hand in hand with bandwidth. The business user of the Internet likely has a high speed connection to the Net. This is not so with the individual consumer. "Bandwidth demographics" will be important until high bandwidth becomes pervasive. Consumer-oriented e-Commerce must be designed to reach the 28.8 modem users who will simply go elsewhere if they have to wait for large multimedia files or Java applets to be downloaded. Keeping it simple and snappy is essential while still using graphic tools to maintain interest. Users should be offered a choice between low and high resolution graphics, or in some cases, text only. In the low bandwidth era of the Net, email will continue to be an important communication tool.
E-Commerce Imperative: Demographics will continue to be very important in business-to-consumer e-Commerce markets. Demographics are changing on the Internet, and smart companies track them closely.
Power Shift to Communities-of-Interest
In the electronic marketplace, marketing push is replaced with customer pull. Electronic communities have been a reality on the Internet since its inception. These are places where people having common interest go to share ideas, information and opinions. Such pools of common interest are powerful agents of change in the marketing equation. The power and influence of these "consumer unions" can be compared to the labor unions that balanced the power of the industrial moguls. In the Industrial Age, industries were largely shaped by the production process. In the Information Age, industries are being shaped by the consumption process. Existing channels of distribution are giving way to global communities-of-interest that eliminate channel components that they do not perceive as adding value. For example, American Airlines' Travelocity was originally designed so that travel agents would still add value by being the means of delivering the ticket. Consumers who represent the travel community perceived little value in this arrangement, and the travel agent was disintermediated from the consumption process.
Nets Inc.'s Industry.net pioneered an electronic marketplace and community-of-interest for industrial goods and manufacturing materials. It is a technical information community enabling one-to-one marketing of industrial products and services. Industry.net offers a wide variety of free and paid editorial and technical information used for specification and sourcing by design and maintenance engineers and procurement professionals around the world. Nets Inc. attracted investments from the likes of Bill Gates and was run by Jim Manzi, founder of Lotus Development Corporation. In 1996 it was recognized by PC Magazine as one of the 100 most important sites on the Web. It had all the right stuff, providing product news and information as well as online industrial catalogs.
At 4:13 p.m., May 9, 1997, Nets Inc. petitioned for Chapter 11 court protection. The company had died. Manzi filed claims for $1.6 million against the company, and hundreds of employees were out of work. Yes, there is a reincarnated Industry.net today. Assets of Nets Inc. were sold to Perot Systems in July 1997 for $9 million after Perot hired 60 former Nets employees. In August that year, Nets creditors sued Manzi, claiming his loans were improperly accorded preferential status for payout. The saga continues. On November 3, Information Handling Services Group Inc., an information database publishing group, acquired Industry.net from Perot Systems who continues to host and develop the Web site under a service contract.
There are many stories about the rise, fall and resurrection of Industry.net. One view is that it was too early, too broad and too shallow. If these observations are correct, VerticalNet, a rising star of business-to-business communities seems to have been a little more lucky with a 1999 market capitalization around $2 billion. The moral of this story for those who would establish communities-of-interest is "welcome to the Wild Wild Web." As rough and tumble as they may be as a business venture, communities-of-interest are the cornerstone of the Customer Age.
E-Commerce Imperative: Communities-of-interest are where customers go first to discover and explore solutions. Successful e-Commerce initiatives require building or directly participating in communities-of-interest.
Although e-Commerce can eliminate the middleman found in many physical value-chains, customers in both business and consumer markets want complete solutions. For example, buying a home requires many ancillary resources (e.g. a mortgage, title and property insurance and appraisals). By aggregating many and diverse resources around a complete solution, cybermediaries can provide compelling value. Companies wanting to succeed as cybermediaries must change their thinking from the products and services they now provide, and focus on the bundles of solutions their customers need to fulfill their requirements ( a plane ticket is not a vacation.
Cybermediation is critical in business-to-business markets. With the diversity of industrial and business goods and services, searching for the right vendor with the right product specifications can be a daunting task. The intermediary that can bring together diverse suppliers and customers and provide them with information unavailable elsewhere will win the game of reintermediation on the Net. GE's TPN Resister is an early pioneer in this marketspace and, like its competitors, must keep running hard to stay ahead of the game of adding compelling value and growing business-to-business communities.
E-Commerce Imperative: The middleman is dead, long live the middleman. Middlemen are not dead in cyberspace. Instead, they are reincarnated as the ones who can add value through providing information and aggregating services not previously available. Cybermediaries can aggregate value for buyers and sellers. Traditional wholesalers and brokers pursuing e-Commerce strategies should look for ways to aggregate value, from building an industry portal to participating in open markets.
Logistics and Physical Distribution
Except for products and services that are purely digital (e.g. software, information and music), the other side of the e-Commerce coin is physical distribution. Dennis Jones, V.P. and CIO of FedEx explains, "What often gets lost in discussions about Internet commerce and the digital economy is the physical aspect of doing business. The Internet has engendered a feeling that anyone can start up a Web site to sell widgets, and instantly they're worldwide marketers. To succeed in Internet commerce, we believe a company has to be as effective in the physical world as they are in the electronic arena. The ability to move information around the world at the speed of light is a great enabler of commerce, but it breeds a corresponding need for the physical goods. The information network needs a physical network.ix" Thus the role of the logistics intermediary does not go away, it morphs into the emerging channels of super-distribution that form the new logistics.
We have witnessed the opening volleys in a war for owning the total customer relationship through excellence in logistics. The war is all about time. FedEx invented express distribution 25 years ago based on the value proposition of airplanes rather than ships or trains when the time-value of an item is significant in proportion to the overall value of the item. Time-value is an essential variable in modern economics and is an critical component of customer service.
Amazon.com Inc., citing the nature of the book business and a belief that customers are better served by the warehouse model, has opened an increasing number of warehouse facilities. "We want to own the whole customer relationship, and part of that is distribution," says Amazon.com spokesman Bill Curryx. When Barnes and Noble announced its intention to acquire book wholesaler, the Ingram Book Group, for $600 million*, it certainly must have heightened Amazon.com's appreciation for wholesalers and the physical distribution channel.
The role of the warehouse itself has changed from being a holding bin to an assembly plant. Computer distributors such as Tech Data assemble computers from standard parts to "manufacture" custom-IBM, Apple or Compaq systems in their warehouses. Considering that automobiles are not "manufactured," but instead "assembled" by their brand custodians (Ford, GM and DaimlerChrysler), warehouses become what the New York Times calls the "factory of the future."xi Will FedEx's "flying warehouses" become flying assembly plants as time continues to be squeezed out of the customer-driven supply chain?
Will Amazon.com stop at regional warehouses, or will they get into the physical distribution business as well? Will we one day see Amazon.com trucks driven by Amazon.com employees rushing all about our city streets delivering books, music and all the millions of custom goods one can order through their ShopTheWeb service? Will they even stop at this point, or become book publishers? FedEx may have other ideas in the battles for the total customer relationship. When FedEx set up its VirtualOrder(tm) system in 1997, the logistics company tiptoed into retailing by hosting their customers' sites, putting FedEx in between their customers' customers and their suppliers' suppliers. With all the mega-mergers we have seen in recent years, will we ultimately see a takeover of FedEx by Amazon.com, or visa versa? It is a battle to own the total customer relationship through owning the total value-chain, including logistics and physical distribution. Let the games begin.
E-Commerce Imperative: Successful e-Commerce planning must account for both information and logistics strategies. Physical distribution is an essential variable in the e-Commerce equation.
Branding: Loyalty and Acceptance Still Have to be Earned
Branding is dead, long live cyberbranding. Consumers turn to brand names and pay a premium because of trust. When shopping for a book on the Internet, cost may be the foremost criterion. But if the best price is offered by Joe's Book Bin, the consumer may hesitate before entering a credit card number. Although Joe's Book Bin may use the same secure credit card server as Border's, the consumer may take the price hit to go with a trusted brand name.
The rush in many industries to be first on the Net has a lot to do with establishing a brand name on the Net. But a first-to-market site had better be the most convenient, cost-effective, informative, simple, secure and reliable resource available. These are the ingredients of building loyalty and ultimate trust that result in successful branding. Word travels instantly through electronic communities and reputations can be made or destroyed with the click of a mouse. Without strong branding, a given company will likely be reduced to a commodity provider, competing with ever shrinking price points and margins.
E-Commerce Imperative: Branding on the Net is as essential as branding in the traditional business world. Companies must have an aggressive branding strategy as part of an overall e-Commerce strategy or be reduced to a commodity player. Quality and reliability continue to be critical factors in creating brand awareness.
When Most Markets Behave Like the Stock Market
Fixed pricing is relatively new. When time is eliminated in the supply and demand equation, pricing dynamics change radically. Whether dealing in commodities or premium brands (in either business-to-consumer or business-to-business marketspaces) pricing policy, a core part of business strategy, must adapt to the reality of Internet market mechanisms which are becoming increasingly real-time and global. Coca Cola is already testing a vending machine that sets the price of a can of Coke based on the weather ( customers must pay more on a hot, dry day. The fully interactive nature of the Net is moving markets closer to the "perfect information" requirement of pure competition. Ultimately, the result will be the death of fixed pricing. Pricing, however, will not be the only component of the buying decision. Availability, perceived quality, and service still count, but dynamic pricing strategies are vital to successful marketing plans.
E-Commerce Imperative: Whether dealing with a premium brand or commodity, pricing policy, a major component of overall business strategy, must be increasingly dynamic as a result of the market mechanisms of global e-Commerce.
Following on the notion of the death of fixed pricing, the interactivity of the Internet has led to the growing use of auctions in both business-to-consumer and business-to-business markets. Whether it is selling antiques to consumers or putting surplus inventory on sale, auctions are becoming commonplace in the digital economy.
Generally, auctions are segmented into four major one-sided formats: English, Dutch, first-price sealed-bid, and uniform second-price (Vickrey). In one-sided auctions, only bids are permitted, but not "asks." A double auction is not one-sided because bids and asks take place at the same time (bid/ask trading). The English auction, known also as the open-outcry auction or the ascending-price auction, is the format most familiar to Americans. Here the seller announces reserve price or some low opening bid. Bidding increases progressively until demand falls. The winning bidder pays highest valuation. The bidder may re-assess evaluation during the auction. The item is sold to the highest bidder unless the reserve price is not met, in which case the item may not be sold. Often, the reserve price is not revealed to thwart rings who have banded together and agreed not to outbid each other, thus effectively lowering the winning bid. Competition and enthusiasm is at its highest in the English auction where inexperienced participants sometimes end up paying more for an item than its value - the "winner's curse."
The descending-price auction, commonly known as the Dutch auction, uses an open format wherein the seller announces a very high opening bid. The bid is lowered progressively until demand rises to match supply. When multiple units are auctioned, normally more takers press the button as price declines. In other words, the first winner takes his prize and pays his price and later winners pay less. When the goods are exhausted, the bidding is over. In the Dutch system, a seller tends to receive maximum value since the bidder with the highest interest cannot afford to wait too long to enter his bid.
The third auction type, known as the first-price, sealed bid or discriminatory auction, is common when multiple items are being auctioned has a bidding period in which participants submit one sealed bid in ignorance of all other bids. At the resolution phase bids are opened and the winner, who pays exactly the amount he bid, is determined. Usually, each participant is allowed one bid, which means that bid preparation is especially important. When multiple units are being auctioned, sealed bids are sorted from high to low, and items awarded at highest bid price until the supply is exhausted. The winning bidders can, and usually do, pay different prices.
In the uniform second-price auction, commonly called the Vickrey auction, the bids are sealed, and each bidder is ignorant of other bids. The item is awarded to highest bidder at a price equal to the highest unsuccessful bid. When auctioning multiple units, all winning bidders pay for the items at the same highest losing price. The price that the winning bidder pays is determined by competitors' bids alone and does not depend upon any action the bidder undertakes. Less bid shading occurs because people do not fear winner's curse. Bidders are less inclined to compare notes before an auction.
Online business-to-business auctions are expected to top $7.3 billion in 1999, according to a report released by Forrester Research. They will be a significant portion of all revenue spent in online auctions, which is expected to approach $52.6 billion by 2002. Companies that sell enterprise-capable auction software are focusing on the computer and semiconductor industries because their fast-moving product cycles often cause inventory management problems. The auction market is also touching commodity industries like oil and gas.
For buyers, auctions offer a wide range of goods at competitive prices and low transaction costs. Sellers liquidate surplus goods or use the auction to help set prices on first-run goods. Some companies have turned to customized solutions that account for particular inventory-management needs. Media Auction lets advertisers take advantage of last-minute deals and bargains as they bid for unsold media time on networks and stations around the country. In building an auction site that emulates conventional business practices, a marketer has to be prepared to do a high degree of analysis. Allowing buyers to access lists of available advertising slots ( a task that previously required dozens of phone calls ( cuts administrative costs considerably. Auctions could end up cutting out the middleman in some types of transactions, and fixed pricing will most likely fade in the digital economy.
E-Commerce Imperative: Even though auctions may not have played a significant role in most industries, auctions now become important due to the interactive nature of the Internet. Auctions should be considered as part of most e-Commerce strategy planning efforts.
Over the last decade, business process reengineering (BPR) led to new levels of internal efficiencies in Global 2000 corporations. Around the globe, companies networked their internal computers to eliminate duplicate business processes and paper handling. Today, the Internet opens a whole new realm of possibilities for streamlining business processes that cross company boundaries, taking reengineering to new levels. By interconnecting companies with their suppliers and trading partners, inefficiencies can be eliminated in supply chains and total operating costs can be dramatically reduced. Pioneers are creating hyper-efficient supply chains and hyper-efficent companies.
E-Commerce Imperative: Companies must take their reengineering efforts to the next level by encompassing what is external as well as their internal operations. They must extend their supply chain management systems and optimize their operating resources using the Net. Competing against hyper-efficient companies and supply chains enabled by the Internet will become increasingly difficult.
The E-Commerce Conclusion
Although we could add to the list of e-Commerce imperatives, the ones we have discussed provide a "look and feel" for the emerging digital economy. These imperatives provide a framework for developing business strategy and should be central to senior management thinking as they prepare their companies for the road ahead. E-Commerce provides a completely new infrastructure for a whole new way of conducting business and competing in the digital economy. Radical new business models and new rules of competition make e-Commerce the business imperative of the 21st century.