As soon as the technology offer becomes clear, the company needs to understand when and how on line commerce is going to change its business. The logical attitude is for the company to take steps to invest in this electronic market with the most accurate business model that will be valid on the long term. What are the opportunities?
The first question one should think of is why online trading is so successful and will increase in the future to encompass more and more industries? The following points are relevant; electronic commerce is transforming the way business is conducted, improving the accuracy and efficiency of business processes while accelerating them as well, and fundamentally changing business relationships. The dramatic rise of the Internet and World Wide Web as business tools underlines the importance of these new ways of working. Organisations must exploit new ways of working, not just compete with the objective of survival. Online business is not a question of ceasing or stopping traditional business activities, to be replaced by other online ones. Electronic commerce does not replace commerce. It adds a complementary market to the traditional one, one that helps previous activities to develop themselves and offers the opportunity to create new services and customised goods. This means economic development. Both supplier and customer can have benefit selling or buying on line;
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Source : Opportunities and benefits, 1999 : www. Ispo.cec.be
The only concepts we usually hear about are the “B to B” and the “B to C”. The first one represents the online business between companies and the other the online transactions between business and the general public. According to the Lorentz report, amongst others, this first category is the main one, representing approximately 80% of the global turnover online. This analysis of the digital economy is far too limited. It minimises the number of market players and the impact of this new way that global demand can meet global supply. Therefore, we should focus on this theme to discover the reality of the situation, even if very few concepts are available at the moment.
qAn architecture for the product, service and information transfers, including a description of the various business actors and their roles
qA description of the potential benefits for the various business actors; and
qA description of the sources of revenues.
The objective is to redefine all services and understand how information flows within the company. This is an internal strategic audit. We can then identify possible ways of integrating information and the Internet technologies (Intranet, Extranet, ecommerce) along the chain. Then, to go deeper into this “internal process’ analysis, we can try to identify the potential activity on which the innovative generation process has an impact.
ØMarketing, sales and sales promotion
ØPre-sales, subcontracts, supply
ØFinancing and insurance
ØCommercial transactions; ordering, delivery, payment
ØProduct service and maintenance
ØCo-operative product development
ØDistributed co-operative working
ØUse of public and private services
ØBusiness-to-administrations (concessions, permissions, tax, customs,ect)
ØTransport and logistics
ØPublic procurement
ØAutomatic trading of digital goods
ØAccounting
Then on the electronic market, interactions can be detailed the following way. They can be one to one, one to many, many to one, or many to many. "Many" means that several market players will come together to sell online. For example, an unsuccessful many to one business model is the virtual “mall”. This conclusion will also influence the strategy and the way the web site will be built. It will also help companies in terms of organising their IOS (Inter Organisational System). The question is what will interactions be like on line
To conclude, we can foreseen the following changes:
·The
buyers might gather to better deal with suppliers. (Some companies are
using creating communities in France to do it. One example is given by
graphic village.
üRadically reduced marketing time
üReduced delivery costs (for intangible products)
üAccess to new markets
üImproved customer relationships
üEasy access to global markets
üEqual access to markets (The opportunity for even the smallest company to compete worldwide with much larger rivals.)
üCustomers involvement in product and service innovation
This is a general statement companies
should study to see in which way some of this impact might have an influence
on their own activity, on their own value added chain. They definitely
should then decide to master one of these impacts to increase the company
added value.
Example of a new marketing approach : A computer game company made the following findings in analysing its value chain and the possible impact of electronic business:
Electronic commerce implies that
we inform (advertise) and sell in the same virtual area. In other words,
the company is most of the time directly in touch with the consumers. This
implies that innovation does not only find its source in the research and
development department but also on the commercial web site during the sales:
One of the best examples is given by computer game companies that use research
and development to find ideas to offer new games. Some of them presently
use their web site in an ingenious manner to test their new ideas with
online young people. The latter are very pleased to discover a new game
and in exchange the company asks for comments and recommendations. That
is called a free panel. Besides, we can infer that young people who connect
to this specific site are already good customers and have a very high interest
in the product. Otherwise they would probably never end up on this specific
site. This means that the quality of comments will be very good. The following
scheme describes at which level innovation (thanks to on line
sales) now can be used:
A team of young people built an information web site. After working on its content, they finally decided to offer this service for free, but they had the brilliant idea adding an attractive online questionnaire to their web site. Many people filled in. The information they received from people was automatically saved on a database. (In order to avoid legal problems they added a clever question at the bottom of it; “all your personal data can be modified anytime upon request” and“do you accept to receive a commercial offer”? Ifthe people are aware of the commercial use of this data, they can sue the web site afterwards). After a few years they had built a large database with precise information about potential customers. They could study the kind of people that answered the questionnaire and rent the database to distant sales companies. We can conclude from this experience that the web offers new kinds of revenues. As soon as a web site is often visited, the potential is great.
Another type of revenue well-known on the web comes from advertising. Many companies, especially in the media, earn more money selling publicity spots than by selling there products. A typical example is that of online media, which even offers their services for free. However, the use of advertising to create revenue should not be limited to this kind of company. The following web sites are free thanks to advertising: USA Today, CNN, Business Week, Matinternet, Journal de Montreal, The Gazette, Hot Wired, Pseudo, SonicNet, Pointcast, Pathfinder….
This list is not complete but at least it proves that electronic commerce is really challenging and really implies new concepts and ideas. In fact, in both examples companies are earning more money this way than selling their own product or services.
qE-shop
qE-procurement
qE-auction
qE-mail
q3rd party marketplace
qVirtual communities
qValue chain service provider
qValue chain integrator
qCollaboration platforms
qInformation brokers
This approach is interesting but only allows to follow what’s happening. In terms of creativity there should be another way to understand business models. Marc Sahraoui, the leader of EDI France (Electronic Data Interexchange) has suggested that this is very accurate and helps understand that all parts of the economy are involved in this digital economy.
There are 5 main business models area according to this matrix from EDI France. All the following business models apply or will apply and should be analysed to understand the opportunities offered by the electronic market.
The first step of business models is to define market players. This is related to our analysis with the Porter matrix.
Administrations :
Quite surprisingly administrations are becoming a leader in this market. They include the State, Ministries and especially the Treasury department in every country (which could be the big loser of this new market) and the administration at higher levels like the European level: DG XIII and DG XXIII for example, Eurostat, customs....
Businesses :
This word must be understood to include all manufacturers, wholesalers and logistics companies, whether they sell tangible goods or not or provide services delivered online or not. Two main categories of companies will have different approaches (in terms of the amount of money they can invest). There are MNCs and SMEs.
Customers :
The general online public is concerned.
Services :
In order to have a clear view of
the electronic business, we need to identify and consider as fully independent
market players two kind of services : insurance and banking business.
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FIVE BUSINESS MODELS TO ANALYSE |
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qAuctions
qDirect sale
qSales network
qMarketplace
To clarify, these five business models, we can give the following examples.
Example : Financial
departments (inter-services compensation)
The clearing agreement in general. For example, the networks can be used for customs clearance purposes between administrations. This already the case but this service is not ready to be available on line. Most clearing agreements will probably be possible on the Internet in the near future.
Example: Tax payments, Payment teleprocessed (i.e. banking card or EDI)
In France, SMEs used to teleprocess tax payments on the Minitel. Now, this can be done on www. Urssaf.fr.
Example: Manufacturer (direct sales)
It is possible to connect to their web site and select the features you want about your computer, then it is automatically priced. The Dell company is a relevant model especially in term of turnover. They also happen to sell more online in Europe than in the US!
Example: Manufacturer (sales network)
The Sales Network is the second possibility. In France the reseller grouping of computers called Aredia just open a new electronic platform for the same purpose on Internet. The latter is called : www. divendo.fr(a similar web site can be found in the UK called : www.qxl.fr). Twenty five manufacturers use this platform to sell products they could not sell with traditional distributors. Only professionals can buy, as password they must use the code that all companies in France are given by the RCS (business and companies registry). However, this distribution channel is not supposed to be in competition with other distribution channels. In fact, only spare computers (from IBM, Compaq, ..) are available according to what the manufacturers need to get ride of, and not to what customers need. The delivery is free unless the purchase is superior to 5 000 Francs then it is invoiced 100 Francs. The owners bet on the sufficient professional’s knowledge of computers so they can purchase alone. Therefore, this channel will be a complementary one. (Source Internet professionnel / Feb. 99)
Example: Selling of intangible goods
Quite surprisingly on networks, the frontier between tangible goods and intangible ones is going vague. We are now used to buy books online, in France people use www. alapage.com, www. bol.com in Europe and www. Amazon.com in the US. However, the temptation is great to revolutionise the edition industry. Why don’t we use multimedia features hyperlinks and interactivity to rewrite any kind of books. The first step towards multimedia writing is made for ex be 00.00.Com, a French company selling and delivering digital books online.
Example: Selling of services
All kind of services that do not
require to see the customer to deliver the services can benefit from online
sale. The first service industry that “invaded” electronic market is the
tourism one. Its turnover online is even superior to the computer industry.
There is one company in France, Degriftour which sold 40 % of its services
on Internet in 1998. The revolution will be weighty. Some customers already
understand that if their travel agents down the street could not get the
flight they needed for their holiday, they could eventually find it online
easily, on www. Travelocity.com for example. It seems that travel agencies
do not have access to the entire supply of flight. We can assume that they
all have contract with reservations systems whereas online web site can
give all opportunities. In addition, they will be able to see on line the
place they are flying to. They can virtually visit their hotel and select
the best room.
Example: www.banquedirecte.fr
This is one of the most on line bank in France. We can note that on line banking has become common place for Scandinavian countries, whereas in France and south Europe it remains rare in terms of use.
Conclusion :
Eventually, a business model in itself
does not yet provide understanding of how it will contribute to realise
the business mission of any of the companies who is an actor within the
model. What we need to know is the online marketing strategy of the company
in order to assess the commercial viability and to answer questions like:
how is competitive advantage being built, what is the positioning, what
is the marketing mix, which product-market strategy is followed. Therefore
it is useful to identify beyond business models also “marketing models”.
We can conclude on the fact, that there are a numerous number of opportunities.
However, the creation of a business model is not enough. A marketing model
should then be defined.
According to a survey by leading research firm Jupiter Communications carried out in January 1999, the number of on-line shoppers had declined in the previous six months although on-line traffic had risen. On-line shoppers said they were dissatisfied with the lack of service and the inability of retailers to fulfil orders, especially during the Christmas period. The survey found that 37 % of those surveyed indicated they would spend more next time, 58 % about the same amount, and 5 % less. On average, only 74 % of on-line shoppers felt satisfied, which was 14 % below the same figure for July 1998.
The conclusion is easy to draw - more and more shops are offering their services on line but providing a less quality service. There are, firstly, some technical reasons for these problems. Some web site are more than three years old. At the time which they were built software solutions for constructing E-commerce web sites were just being launched. Thus, there were performance difficulties in the start up. In addition, most commercial web sites were built without any software global solutions which included databases.
There is a lack, however, also in term of marketing strategy. Marketing managers need to understand the particular challenges of this market and lead the action. They should not, as is often the case for example, allow the webmaster to answer customer questions. Webmasters are not trained to answers such queries in a customer/product sensitive way!
How might the electronic market be said to have changed the rules of international marketing? We can infer from the business models described above that the effect of the Internet is potentially revolutionary. Other distribution channels may be considered as less developed, less direct, or less efficient. Companies are able to add value thanks to the multimedia characteristics of Internet. Naturally, the marketing strategy will depend on how much value the company can add to their new online service. Some companies really investigate all possibilities. They build a specific strategy for their on line service based on the core competencies of the company. The managers will ask themselves,“What do we do very well on the traditional market? Why are we successful? What is the added value of our product?” Then another set of questions will have to be posed about the networks themselves. What are the features of Internet? The web site, electronic mail, forums, on line chats, file transfer, multimedia servers, videoconferencing, music, video and above all interactivity. Companies can very simply interact directly with the customer people. The next question is, marketing-wise, how can these features and the core competencies of the company be used to create a new, very attractive service on line?
A good example of an innovative answer to these questions is the web site: www. Kickers.be. This site offers the possibility to choose a pair of shoes and to personalise them, selecting the colour you like. During Christmas, the Barbie websie offers also the same kind of complementary service. The little girl can choose all the additional items she did not receive at Christmas for her Barbie doll. Unfortunately, however, many companies choose the easiest route. They simply decide to scan the last company's product catalogue and after few hours of programming it is available on line. It is very doubtful that this is the best way to invest a new market.
Traditionally, “marketing” means the process by which we plan and execute the concept, price, promotion, and distribution of goods and services, in order to generate exchanges (trade-off) which allow both consumers and organisations to reach their goals. But in the new electronic market is this definition still relevant?
To answer this question, we need to examine the key attributes of a commercial web site. A famous French web site provides a striking example of these characteristics. At the IICE (International Institute for Electronic Commerce) conference in Paris on 14 / 01 /99,Cécile B.Loupan was asked to give her opinion on what makes a commercial website special in marketing terms. She is the manager of a new open and successful web site called www. Eveiljeux.fr, which means brightness and games. Originally, a pedagogue, Loupan’s web site become very famous within a few weeks of launch among parents. What is so special about it? What is the product? A selection of educational toys is sold on this web site. They are chosen for their educational value and not just visual appeal. A large part of the site is used to inform parents about the way they should use the toys or games to benefit from their pedagogic aspects. This part of the site is called the ‘parent’s place’. Children also have a specific place as well. In terms of content, this site is very rich and really adds value to the purchase.
In conclusion, success on commercial stems from the ability of the company to provide the customers with accurate information. Choosing a pedagogue to manage this web site was a brilliant idea. In traditional commerce, companies use the media (TV, radio,…) to communicate, and point of sale, to sell. A web site is both – it is both a point of sale and a media. A web site with inaccurate, or insufficient information is not going to be interesting for anybody and will therefore generate no sales – unless, of course, the customers are professionals and know the product very well.
So how can we define on line marketing?
"The aim for the on line trader is to provide customers with accurate information, at the right sequence (time), at the right time".
One mistake which should be avoided is to consider the effect of the Internet only at the level of the third "P" (place) of the marketing quartet of ‘product, promotion, place, and price.’ As discussed above, the Internet should be considered completely independently from any other market place. Therefore, a number of perspectives that could help companies define their marketing and communication strategy will be suggested.
Source : A. DUFOUR
The basic marketing concept of the: ‘4 Ps’ (Product, Place, Price and Promotion) must be adapted when transferred to the Internet sphere. The following elements can replace the traditional ones.
¨Product (one-to-one)
¨Price (standard)
¨Promotion
¨People (communities)
The “place” where we display the product loses its importance on networks in terms of marketing. What becomes more and more relevant is communities.
We will therefore analyse the relevance of the new four “Ps” - People, Product, Place and Promotion – to marketing strategy in this new dimension.
The Communities
The first group is formed by the existence of synchronous exchanges. AOL (America on line) is an international ISP (Internet Service Provider), which has created the largest on line community which has ever existed. About 18 million people use this service. From each original community, other communities will branch off.. Other types of synchronous communities are formed by the use of on line chat services like MIRC or ICQ. It enables people from all over the world to connect and share the same topic of conversation.
Asynchronous communities form the
second group of communities. In these exchanges individuals form groups
but are not on-line at the same time. They might take the form of forums
involving the exchange of ideas on any kind of subject. Another way of
creating these kinds of communitys is the use of an electronic group (previously
named mailing list). (www. Egroup.com). Using this website a community
can be founded by registering all emails of the persons invited. Each person
can then write to all the others using a single email address. This service
is usually free, if the community accepts to receive advertising.
Eventually companies and organisations, will try to offer such a community service on their web site. This means that the people will create a group according to a brand name. In this case, the company has no effort to make -the group, or what they call the “clubs,” come directly to them. For the time being, companies have not yet exploited this possibility.
Finally, it is recommended that companies start to identify the target communities, and communicate with them. Communities have great potential in terms of marketing. In fact, people tend to group themselves by interest. They form target groups. The communities are the “place” where companies should be. The best strategy for ‘catching’ the target community is to provide them with a new service. The worst idea is to gather all the emails received and to inundate the senders with messages and adverts, without asking for their feedback. It costs money to be on line and it costs money to open and read email. Companies should be aware of this fact.
Who form the Communities? – the Consumer Profile
What about the consumer profile?
According to a Cap Gemini survey (LSA 6/02/1997), the online person in
1997 was a young computer scientist. 95% of the people connected were men
between 15 and 35 years old and spent hours on line. The profile has changed.
In 1999, according to www. Abc-marketing.com., Now young people, retired
people and women, (especially recently women in Japan) connect to the network.
One of the reasons for this, is that computers, and the use of the Internet,
are becoming cheaper and cheaper. In UK, companies like Tesco even offer
free connections to its best customers. 140 million world wide people are
on line – many connect more than once a week. They connect from home, universities,
school, work, cybercafes or for example in Amsterdam, at special terminals
on the street at the bus stop.
qComputers and related products54 %
qLeisure and culture 24 %
qOn line booking (flight, hotels..)6%
qOthers4%
The most popular products sold on line were related to the world cup last summer and personalised children’s toys at Christmas.
However, this brief overview is only an insight into what is currently found on line. Internet is not any more only reserved to mail order companies. The attraction of the electronic market for other industries and market players will quickly change the sales distribution shown above. According to Béatrice Lecuvelier, 07/1998, product sales distribution by the year 2002 will be as follows;
qEnergy
qFinancial services
qIndustrial products
qGeneral
goods consumption
Modern society is seeing the rising success of one to one marketing as opposed to the traditional mass appeal approach. The tools required to carry out this new individualised strategy will of course need to be more targeted, sophisticated and customer-change sensitive. The characteristics of the Internet, as examined above, respond perfectly to this profile of a new marketing tool. Internet selling is the only media or market that allows this concept of One-to-One to be applied at a large scale with a reasonable cost.
Two interesting books provide a description of the way the Internet can be exploited in this way. “One-to-one” by Don Peppers and Martha Rogers and “Internet Guide to one-to-one Web Marketing”. As soon as an individual registers on the web site, they have the opportunity to give personal data, if they wish. Any transactions or browsing that ensues, when recorded, will also generate additional personalised data. In exchange, the company personalises the services that it offers to the particular customer. Some hotel chains are using this marketing concept to improve their customer services - automatically recording the customer’s habits, their favourite meal etc.,. However, companies will eventually have to develop policies about what they do with personal data and how much people can be persuaded to trust them with it. Anyway, customers love to be personally identified in this world of mass consumption. Some interesting software for personalisation of services on line, such as one-to-one Enterprise 4.0
The tool hiding behind this marketing concept is obviously an efficient customers database. Use of such a database will quickly create a difference between companies in terms of competition. Some companies will continue to use mass marketing, whereas others, using the new tools, will be able to communicate with their customers, learn from them on the long run, discover their new needs, and offers the most appropriate service, and accurate information at the right time and in the right quantity.
Customer Identification : Using the internet tool the company is able to analyse an individual’s spending habits and to adapt their marketing strategy to respond to each person’s particular needs. If you mean something to the company in terms of sales, they will probably invest directly to seduce you. Poor or greedy customers, on the other hand, are likely to be left aside. Don Peppers and Martha Rogers classify customers in three groups :
¨The MVCs, are the most valuable customers which are mathematically more profitable.
¨The SVCs Second-tier valuable customers, have a strong potential but have not bought anything yet.
¨The BZs (below zero customers) are expendable – they never buy enough to be interesting in terms of marketing targets.
Using the Data : Once the data has been collected and the initial customer profile analysed, additional tools are required to bring the marketing process onto a new level. The following activities can be undertaken :
ØCustomer Tracking. The combination of customer databases and customer follow-ups online allows full customisation of customer’s interactions.
ØInteractive dialogue: For the first time the producer through E-mails is able to discuss with its consumers. In the near future, it will be possible to talk to a salesperson online.
ØMass customisation: The web is not only be an opportunity to have personal communication with clients, but also the opportunity to deliver products and after-sales services much more efficiently. www. Thenetshow.com is a good example of customisation.
It is possible to deduce short-term objectives for an advertising campaign from the mechanisms described above :
ØIncreased click-through rate
ØIncreased conversion rate
ØA fine-tuned retention system and supply chain – the provision of a level of customer service that enables you to retain customers
ØEffective marketing to existing customers. (especially MVCs)
What techniques can companies use to communicate well on line and to reach these measurable objectives?
Some companies quite hopelessly send millions of E-mail randomly to any kind of person that is connected. This is a mistake. The level of education of the average on line person is far too high in this market and heavy campaigns with almost little focussed meaning are not convincing people anymore. People are looking for personalised services and products and interesting information. According to what we can now see on the web, several techniques are much more effective than others:
ØPlay well with public relations : To be mentioned at the right place within any kind of media (traditional or otherwise) can bring thousands of people to a company site overnight. Companies that sell online are still actively being sought in France by the media in this regard. The best way to ensure this is to contact a specific company that will organise the selling of the company image. The start-up trait d’union in Paris is said to be quite efficient in that matter.
ØClever banner ads have also a good impact – The banner should be created in conjuction with the sales person in the company. The trend is now to develop banners with Java or VRML. People also appreciate interactivity or games within the banner - at least humour!
ØThe creation of an on-line Quality Newsletter advertising is also usually very effective especially if you can provide subscription information easily. These have more success among managers who have very little time to search for information. The best click through rates are proven to be in ads in targeted e-mail newsletters. It should be taken into account, however, that it is time consuming to offer interesting information regularly. Alternatively it also possible to sponsor an issue.
ØKeyword purchase : Connecting people who are actually searching for a product or service is the most ideal situation.
ØSearch
positioning. Companys should really consider
allowing a budget for this activity. It permits a site to appear in a commercial
search engine or to be more easily found by shopping agents. Launching
the most beautiful web site using the best strategy with no investment
in positioning is just like dropping a bottle in the sea.
The first necessity is to transfer existing marketing concepts to the new market and to radically adapt them. But the characteristics of this new market are so different that new concepts must be developed in the understanding of marketing itself.
Some companies are now leading strategic advertising campaigns in order to measure the impact of advertising. This could be a good way to unlock new point of views.However, marketing on line does not only mean advertising - it will also change the way companies create and sell product. The latter are becoming either personalised or digital. The next trend will probably be the offer of digital products. Naturally, they are easily delivered on line at the customer’s costs. 00h00.com in France, sells digital books for example. The new standard MP3 that allows the recording and the downloading of music sound tracks. Thus the new marketing will also change the nature of the business it drives.
