MM September/October 2002
Nielsen/Net Ratings and Harris Interactive indicates that U.S. e-commerce sales in November and December 2001 jumped morethan 15% from the previous year, with a record number of online buyers satisfied with their experiences.But, for businesses, extracting profits from online customershas proven to be a difficult and often deadly process. Triggeredby giveaways, customers have adopted a bargain-seeking men-tality and have proven remarkably resistant to paying for value-added service. Amazon.com, arguably one of the Internet’sgreatest success stories, reduced already low prices in the thirdquarter of 2001. Company chairman Jeff Bezos was quoted in
(October 24, 2001) as saying Amazon’s long-term goal continues to be to lower prices as much as possible.Of course, some businesses, such as the travel industry, havesuccessfully used the Internet to fill excess capacity. But otherbenefits have failed to materialize. Despite increased traffic,online advertising revenue has plummeted. The Internet’s abili-ty to build brands remains unproven—ironically, brand buildingin the dot-com era benefited offline media far more than onlinebusinesses. And if customers are occasionally uneasy about giv-ing up personal information and the specter of Big Brothertracking their behavior online, companies have generally failedto leverage this information anyway.
Amplify Customer Focus
Marketers lured by the Internet’s promise of immediacy,interactivity, availability, customization, and global reach needto evaluate when it really pays to reach customers through theInternet and how the Internet best fits into overall marketingstrategy. To do so, they need to pay even closer attention to cus-tomers and rethink how to evaluate market opportunities, setmarketing strategy, and deploy marketing programs.And nearly every firm must reckon with changes the Internethas wrought in customers: Online experiences have changedhow customers learn about products, form competitive choicesets, shop for products, and purchase. Customers’ online experi-ences have colored their offline interactions—and vice versa.Each firm in each industry will have to craft its own market-ing strategy, depending on its existing market position andinternal capabilities. The effects of the Internet are still cascadingthrough the economy, and the transformation will range fromsmall to large depending on the nature of the product or serviceoffered. While that transformation is significant and transparentin areas such as music, publishing, financial services, and travelservices, where the core product is inherently “digitizable,” it’sless relevant for commodity products with minimal brand dif-ferentiation and widespread offline availability.Despite these differences, all marketers must ask themselvesfour key questions: (1) Does my segmentation reflect new cus-tomer preferences and new ways of addressing customers? (2)Which channels can most efficiently deliver each of my productsand services? (3) How can the customer experience I provide—across all channels—enrich the customer relationship? (4) Am Iusing my customer data effectively?The following marketing principles can help companiesleverage the new technologies in the networked economy:
1. Join market segmentation with individualization.
Thehallmarks of the classical approach to marketing strategy aresegmentation, target market selection, and positioning. Afirmsuch as Wal-Mart would first segment the market, then choose aparticular segment (e.g., a rural geographic area underserved bytraditional retailers) and position within the segment (e.g., lowprices and brand names are key benefits). All individuals withina segment most likely would receive the same marketing com-munications and be offered the same products and services.Then one-to-one marketing proponents like Don Peppers andMartha Rogers said companies should do away with segmenta-tion and treat every individual as a segment. They argued thatnew technologies offer the tools and data to target individualneeds for a completely customized experience. However, indi-vidually targeted communications and individually customizedproducts have proven difficult to achieve. More important, evenif one-to-one marketing could be implemented, it’s unlikely tobe the most profitable strategy. Why? Because different clustersof customers vary significantly in their profitability for a partic-ular firm.There is a middle ground. It’s possible to take a segment, sayone defined by common needs, and embed different levels of individualization and interactivity within it. Information andcommunications technologies have enabled firms to touch targetcustomers at the individual level with a dialogue of interactionrather than broadcasting the same message to everyone.Customers participate in the customization process both active-ly—by supplying information on their preferences—and pas-sively—through tracking systems. Using these data, marketerscan refine and individualize their product offering.Take American Airlines. It knows which travelers fly mostfrequently and rewards this preferred executive platinum travel-er segment with one-to-one options both online and offline. Thissegment has an exclusive phone number (which screens based
After the dot-com downfall, the new-economy mantras appear to have lost their luster. But todismiss Web marketers entirely is short-sighted. In the past few years, the Internet has qui-etly emerged as a potent marketing channel that few industries can afford to ignore. But, sofar, customers have reaped most of the benefits. The challenge now is to harness this channel, placing customer experience andrelationships at the center of strategy to create value for marketers as well as customers.
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