REDISCOVERING

By Bernard Jaworski
and Katherine Jocz

D
uring the dot-com heyday, companies gave away
products and services while they were simulta-
neously investing staggering sums in infrastruc-
ture. In the online realm, any consumer or busi-
ness with access to a computer and a Web con-
nection could conveniently choose from a wealth of
discounted or free products and services, log on to tons of
information and free entertainment, and partake of new serv-
ices such as e-mail and chat rooms. For their part, customers
gave up personal information to marketers and permitted
Web sites to track their online behavior. Collectively they con-
stituted the coveted “eyeballs” sought after by marketers.
The benefits to customers have translated into consistent
and growing demand for online services, despite the shake-
out of Internet companies. In fact, a January 2002 report from

22 ❘ MM September/October 2002
 Now that the dot-com dust
has settled, the big winner
is the customer.

the Customer

MM September/October 2002 ❘ 23
 EXECUTIVE After the dot-com downfall, the new-economy mantras appear to have lost their luster. But to
dismiss Web marketers entirely is short-sighted. In the past few years, the Internet has qui-
briefing etly emerged as a potent marketing channel that few industries can afford to ignore. But, so
far, customers have reaped most of the benefits. The challenge now is to harness this channel, placing customer experience and
relationships at the center of strategy to create value for marketers as well as customers.
Nielsen/Net Ratings and Harris Interactive indicates that U.S. e-
commerce sales in November and December 2001 jumped more
than 15% from the previous year, with a record number of
online buyers satisfied with their experiences.
But, for businesses, extracting profits from online customers
has proven to be a difficult and often deadly process. Triggered
by 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’s
greatest success stories, reduced already low prices in the third
quarter of 2001. Company chairman Jeff Bezos was quoted in
Publisher’s Weekly (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, have
successfully used the Internet to fill excess capacity. But other
benefits have failed to materialize. Despite increased traffic,
online advertising revenue has plummeted. The Internet’s abili-
ty to build brands remains unproven—ironically, brand building
in the dot-com era benefited offline media far more than online
businesses. And if customers are occasionally uneasy about giv-
ing up personal information and the specter of Big Brother
tracking their behavior online, companies have generally failed
to leverage this information anyway.
Amplify Customer Focus
Marketers lured by the Internet’s promise of immediacy,
interactivity, availability, customization, and global reach need
to evaluate when it really pays to reach customers through the
Internet and how the Internet best fits into overall marketing
strategy. To do so, they need to pay even closer attention to cus -
tomers and rethink how to evaluate market opportunities, set
marketing strategy, and deploy marketing programs.
And nearly every firm must reckon with changes the Internet
has wrought in customers: Online experiences have changed
how customers learn about products, form competitive choice
sets, 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 and
internal capabilities. The effects of the Internet are still cascading
through the economy, and the transformation will range from
small to large depending on the nature of the product or service
offered. While that transformation is significant and transparent
in areas such as music, publishing, financial services, and travel
services, where the core product is inherently “digitizable,” it’s
24 ❘ MM September/October 2002
less relevant for commodity products with minimal brand dif-
ferentiation and widespread offline availability.
Despite these differences, all marketers must ask themselves
four 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 products
and services? (3) How can the customer experience I provide—
across all channels—enrich the customer relationship? (4) Am I
using my customer data effectively?
The following marketing principles can help companies
leverage the new technologies in the networked economy:
1. Join market segmentation with individualization. The
hallmarks of the classical approach to marketing strategy are
segmentation, target market selection, and positioning. A firm
such as Wal-Mart would first segment the market, then choose a
particular segment (e.g., a rural geographic area underserved by
traditional retailers) and position within the segment (e.g., low
prices and brand names are key benefits). All individuals within
a 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 and
Martha Rogers said companies should do away with segmenta-
tion and treat every individual as a segment. They argued that
new technologies offer the tools and data to target individual
needs for a completely customized experience. However, indi-
vidually targeted communications and individually customized
products have proven difficult to achieve. More important, even
if one-to-one marketing could be implemented, it’s unlikely to
be the most profitable strategy. Why? Because different clusters
of customers vary significantly in their profitability for a partic-
ular firm.
There is a middle ground. It’s possible to take a segment, say
one defined by common needs, and embed different levels of
individualization and interactivity within it. Information and
communications technologies have enabled firms to touch target
customers at the individual level with a dialogue of interaction
rather 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, marketers
can refine and individualize their product offering.
Take American Airlines. It knows which travelers fly most
frequently and rewards this preferred executive platinum travel-
er segment with one-to-one options both online and offline. This
segment has an exclusive phone number (which screens based
on flyer number) and receives a range of services, prices, and
convenience that aren’t available to all customers. Moreover, this
segment always gets preferred, white-glove service—even if it’s
at the expense of other customers. Online the executive plat-
inum traveler has a range of Web-based services such as special
fares and services, all justified by this customer’s profitability.
2. Recalibrate where marketplace exchanges should occur
with the customer. The Internet can be an effective marketing
channel—but not for all companies and not for all products and
services. Each combination of product and market segment
must be scrutinized to see where profitable exchanges with the
customer should take place.
Consider, for example, Wal-Mart. According to a New York
Times article (Bob Tedeschi, September 26, 2001, “Discount
Giants Learn Online Lessons: Film, Yes; Shampoo, No”), the dis -
count giant started its online business selling much of the same
merchandise it did in stores, from shampoo to televisions. It
quickly learned that handling and shipping costs ate up any
margin on the bulkier low-priced items or even apparel. On the
other hand, high-priced electronic goods such as laptop comput-
ers that were difficult to display in stores and easy prey for
thieves were ideal for online sales.
In Exhibit 1 we show a simple framework for mapping out
when to use the Internet as a sales channel, when to use it as a
trigger for offline sales, when to use it to build brands, and
when not to use it. The trick is to simultaneously consider cus-
tomers and products: Which products do you have or can you
build the infrastructure to sell at a profit online? Is there a sig-
nificant segment or sub-segment of your target customers for
this product that’s offered online?
■ Exhibit 1
Which product/market segments can benefit most from Internet channels?
Product/Market Segments
A B
Is segment online and can
product be delivered
profitably?
If No:
Is segment online and does
product require significant
consideration?
If No:
Is segment online and is
the product a highly
branded good?
If No:
Internet will likely have small
marketing impact
The resulting maps reveal competitive opportunities and dif-
ferences. Take Wal-Mart again. Given its infrastructure, online
clothing sales are unprofitable. On the other hand, Lands’ End,
as an established catalog retailer, has the needed operational
capabilities plus a significant number of customers who are
already online. On the Web, Wal-Mart does best by selling dis-
counted goods to a mass audience while Target aims to build
brand awareness among the upscale portion of its shoppers.
High-consideration products, such as automobiles, real
estate, and prescription drugs, or entertainment products are
good examples of cases where an online presence has significant
potential to affect offline sales by aiding the search process.
Branded products (e.g., consumer packaged goods, fast foods,
and over-the-counter drugs) may create an opportunity to
increase brand equity. For commodity products with good
offline distribution, there’s likely to be no marketing impact
from an online presence.
Once the decision is made to use the Web as a distribution or
communications channel, the next step is to decide where on the
Internet consumers will find your products or services. An
increasing share of transactions will occur outside traditional
industry channels.
Book sales are a good example. In addition to online book-
sellers like Amazon that are analogous to bricks-and-mortar
stores, we see a growing number of book-selling sites way
beyond what could have been predicted five years ago. These
include affiliates, portals, search engines, aggregators, and
lifestyle sites. In short, there are many more ways for customers
to search for, shop for, and purchase books.
Moreover, consumers are going to demand that book sales
C D
The Internet can be a
significant sales channel
The Internet has the potential
to materially impact
offline sales
The Internet can build brand
equity and marginally
lift sales
Use only traditional
marketing channels
MM September/October 2002 ❘ 25
■ Exhibit 2
Marketspace matrix for eBay (1995)
occur in settings that make sense from their perspective. If I’m
visiting cooking.com to look for recipes, I also want to be able to
buy books on cooking. If I’m visiting a camping site, I want books
on national parks. Marketing managers must be similarly creative
about where to place their products, locating them in context-spe-
cific locations where the customers will be most receptive.
3. Focus on developing relationships. Because supply out-
strips demand for products, competition based on product fea-
tures and functionality is giving way to competition based on
product enhancement (e.g., through branding and service) as a
way to encourage lifelong relationships. Loyal, committed cus-
tomers are more profitable because they purchase more, are less
price sensitive, and are less expensive to serve.
As relationships grow in importance, individualized market-
ing within chosen segments becomes even more powerful, par-
ticularly when it’s understood that customers within these seg-
ments are each at a different relationship stage with the compa-
ny. Managing customer relationships runs the gamut from mov-
ing customers through the initial stages of awareness and explo-
ration to the commitment stage of the relationship to managing
the dissolution stage in a way that keeps customers satisfied.
Relationships are formed based on the total customer experi-
ence—all the encounters and points of contact a customer has
with the firm, whether product, service, television commercials,
billboards, or Web sites. Smart companies are learning to man -
age all these multiple experiences to create strong, positive expe-
riences and brand perceptions.
Establishing committed relationships requires attracting cus-
26 ❘ MM September/October 2002
tomers, engaging in transactions, engendering trust, and creat-
ing satisfaction. To this end, all components of the marketing
plan must be integrated to deliver a unified, positive customer
experience. There are real perils in not doing this: According to a
March 2001 report from Jupiter Media Metrix, 70% of online
buyers say poor online service from a retailer will cause them to
spend less money at that merchant’s offline store.
The marketspace matrix shown in Exhibit 2 is an approach to
creating an integrated marketing plan that begins with customer
relationships. Each cell of the matrix depicts what a particular
marketing tool is used for at each relationship stage.
The marketing-mix levers in the marketspace matrix are the
familiar ones of product, price, communication, and distribution
plus a new one—community. Communities have flourished as
the new online media have allowed people to connect with one
another. And the Internet can give a powerful boost to each of
the other levers as it facilitates individual, personalized
exchanges between businesses and customers.
As Kevin Lane Keller points out in his book Strategic Brand
Management: Building, Measuring, and Managing Brand Equity
(Prentice-Hall, 1998), the marketing mix, when properly
deployed, will have two outcomes. It will move customers
through awareness and exploration to the commitment stage. It
will also build the brand to create long-lasting, positive, and dif-
ferentiated associations.
Depending on the customer segment, the customer relation-
ship stages that are relevant for the targeted customers, and the
marketing mix tools that are available, some cells of the matrix
will have low or no priority. Looking at the eBay matrix, not all
mix elements are used at all stages of the customer relationship.
Neither will all stages be addressed at a given time. In fact, the
matrix for eBay in 1995 looks quite different from the one in
2000. (See Exhibit 3.)
4. Act on customer data. If nothing else, the Internet is a
data-rich environment. Market research, customer-relationship
management, and marketing metrics all have at their disposal
unprecedented levels of information to allow marketers to make
smart and fast decisions.
Firms that can collect deep rich data on the buying and
usage habits of their most profitable customer segments and
translate these data into better services (e.g., preferred telephone
access) will be able to reap short-term advantages over the com-
petition. Additional short-term advantages can come from shift-
ing less profitable segments toward lower-cost service options,
as the banking industry has done in moving customers from
tellers to ATMs. Many of these short-term advantages can collec-
tively add up to significant competitive strength.
Two barriers stand in the way. First, very few marketing
organizations are set up to gain a holistic view of the customer,
one that integrates data of different types—qualitative and quan-
titative—and from many different sources—online and offline.
Second, few marketing organizations are designed for rapid
and effective redesign of the marketing mix. Having an organi-
zation respond to marketplace events often takes months (or
years), not days. In order to reach customers more quickly and
 ■ Exhibit 3
Marketspace matrix for eBay (2000-present)
more effectively than competitors, businesses will need to build
new structures, systems, and processes to act on the information.
So how should we think about enabling organizations to act
on information? Anumber of organizations are developing special
units to address the most important segments. This has been true
for years—national account structures, market-manager struc-
tures, and skunk works. What’s new is that this form of organiza-
tion will be required of the entire marketing organization.
The need for better and quicker decision making will help
transform the way organizations are structured. We anticipate a
shift away from product-centric or function-centric organiza-
tions to more process-oriented structures, which will largely be
built on specific market segments. In effect, more market-based
organization structures will emerge. Why? Because decision
making will foster tighter ties between departments, more effi-
cient organizational structures, better processes, and more risk
taking on the part of marketing personnel.
Marketing Reinvigorated
What have we learned so far? One lesson is that there’s a
greater need than ever for a customer-centric approach to mar-
keting. For one thing, the evolving needs, attitudes, and behav-
iors of customers as they interact with new technologies require
companies to monitor and adjust to these changes. For another,
easy access to information and handouts from marketers has tilt-
ed the balance of power in favor of the customer.
Anew emphasis on relationships has emerged, along with
new interactive tools to strengthen those relationships. Marketers
now have more means of implementing customer-centric market-
ing—by using traditional marketing-mix tools as well as the
Internet. To help marketers plan and organize in this new envi-
ronment, we have created simple tools for calibrating use of the
Internet as a marketing channel and for planning the marketing
mix. By making information-based decisions and coordinating
customer touch points, marketers can make the most of the
opportunities that the networked economy provides. ■
About the Authors
Bernard Jaworski is managing director, research and develop-
ment, and founding member of Marketspace, a Monitor Group
company. He may be reached at bjaworski@marketspace
global.com. Katherine Jocz is in the marketspaceU group at
Marketspace, a Monitor Group company. She may be reached at
kjocz@marketspaceglobal.com.
MM September/October 2002 ❘ 27