REDISCOVERING

By Bernard Jaworski and Katherine Jocz

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uring the dot-com heyday, companies gave away products and services while they were simultaneously investing staggering sums in infrastructure. 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 services 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 constituted the coveted “eyeballs” sought after by marketers. The benefits to customers have translated into consistent and growing demand for online services, despite the shakeout of Internet companies. In fact, a January 2002 report from

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Now that the dot-com dust has settled, the big winner is the customer.

the Customer

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EXECUTIVE briefing

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 quietly 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. ecommerce 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 mentality and have proven remarkably resistant to paying for valueadded 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 longterm 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 ability 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 giving 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 experiences have colored their offline interactions—and vice versa. Each firm in each industry will have to craft its own marketing 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
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less relevant for commodity products with minimal brand differentiation and widespread offline availability. Despite these differences, all marketers must ask themselves four key questions: (1) Does my segmentation reflect new customer 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 communications 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 segmentation 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, individually 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 particular 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 actively—by supplying information on their preferences—and passively—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 traveler segment with one-to-one options both online and offline. This segment has an exclusive phone number (which screens based

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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 platinum 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 computers 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 customers and products: Which products do you have or can you build the infrastructure to sell at a profit online? Is there a significant segment or sub-segment of your target customers for this product that’s offered online?

The resulting maps reveal competitive opportunities and differences. 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 discounted 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 booksellers 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

s Exhibit 1
Which product/market segments can benefit most from Internet channels?
Product/Market Segments
A 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 Use only traditional marketing channels The Internet can build brand equity and marginally lift sales The Internet has the potential to materially impact offline sales B C D The Internet can be a significant sales channel

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s 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-specific locations where the customers will be most receptive. 3. Focus on developing relationships. Because supply outstrips demand for products, competition based on product features 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 customers are more profitable because they purchase more, are less price sensitive, and are less expensive to serve. As relationships grow in importance, individualized marketing within chosen segments becomes even more powerful, particularly when it’s understood that customers within these segments are each at a different relationship stage with the company. Managing customer relationships runs the gamut from moving customers through the initial stages of awareness and exploration 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 experience—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 experiences and brand perceptions. Establishing committed relationships requires attracting cus26

tomers, engaging in transactions, engendering trust, and creating 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 differentiated associations. Depending on the customer segment, the customer relationship 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 competition. Additional short-term advantages can come from shifting 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 collectively 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 quantitative—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 organization respond to marketplace events often takes months (or years), not days. In order to reach customers more quickly and

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s 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 structures, and skunk works. What’s new is that this form of organization 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 organizations 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 efficient organizational structures, better processes, and more risk taking on the part of marketing personnel.

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 tilted 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 marketing—by using traditional marketing-mix tools as well as the Internet. To help marketers plan and organize in this new environment, 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. s

About the Authors
Bernard Jaworski is managing director, research and development, 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.
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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 marketing. For one thing, the evolving needs, attitudes, and behav-

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