Introduction: So far we have discussed the role of e-Business in shaping the business model of organizations and creating an e-Business Infrastructure. Our focus was on the value proposition of e-Business or, in other words, the "promise" and the "delivery" against that promise which is enabled by the technology infrastructure. This week we will introduce and discuss the decisions surrounding e-Business Marketing:
- Customer: How do we put the customer at the center of an organization?
- Customer Service: How do we ensure sustained customer loyalty?
- Marketing mix: What are some marketing decisions? How do they drive e-Business success or failure?
- Market Research: What is our market? Who is our customer? What do they want?
- Personalization: How do we use the internet to create a market segment of "one" customer? Does that give us a competitive advantage?
The big picture: e-Business has produced some spectacular winners such as e-Bay. However, there have been many more failures such as ChipShot.com. What is more interesting is a category of companies that we cannot put in either category, such as Amazon.com - it has been a spectacular success in generating clicks and revenues but has yet to turn a profit.
- What contributed to the success of the former and the failure of the latter?
- What is the reason behind Amazon.com's spectacular success in attracting customers? What is keeping it from profitability?
There are many known reasons for the failures. As we have already discussed, some of the answers are in the business model, some others in timing, and the rest are strewn around in strategy, processes, technology, and organization. For example, Amazon.com capitalized on the first mover advantage to gain an enviable online market share. However, did it pay too much to create a market segment? In other words, were its customer acquisition costs in line with its "brick" competitors? Can it capitalize on this investment? Successful companies have all got one thing in common - they focus on the customer.
Marketing Strategies: Customer affects all aspects of a business - from model and strategy to service and revenue to cost. Consequently, everything should be built with the customer in mind i.e. to succeed one must put the customer at the center of every decision.
- Who is our customer?
- What do they need? What do they want?
- What are their likes and dislikes?
- How can I reach them?
- How can I keep them?
These questions can make or break an organization. New ventures have grasped this message, or parts of it, very well. It is the "old economy" companies that have taken some time to get there. The following clients shall remain nameless for obvious reasons but they personify what is fundamentally wrong with "just do it" and keeping up with the "flavor of the month" as it relates to technology.
- A client of mine spent millions developing Electronic Funds Transfer (EFT) capability and web service capability for its multi-million customers. They saved a dollar per customer and transaction. What a deal, we need a supercomputer to run the ROI on this one! There was only one problem. The customers were all retirees in their 60s, 70s, and 80s. What do you think is the rate of adoption of the internet in this space? Can you imagine the number of service calls to handle the "has the money been deposited" question?
- Another client spent millions developing a cutting-edge wireless capability. Their trail-blazing product was one of the first available on the handhelds such as Palm. Their pictures were on the cover of some very prestigious magazines. They got 800 hits a month on their website. And that was a good month! This client generated $0 from each hit as the transactions were predominantly inquiries. Even for each "real" transaction, they would have made pennies. The company offers retirement products such as 401(k)s. They do not have their own funds so they offer others' funds!
- How frequently does one trade one's 401(k) accounts?
- When was the last time that you had to change allocations from a train/plane/automobile?
- And the real kicker, it is not the fee but the spread, stupid!
There are many more stories that one can tell. The idea is not to laugh at someone else's mistakes (for every one of theirs, there are 10 of ours!) but to learn from them. These examples illustrate the essence of marketing strategy, namely, matching your customer with the product, price, and distribution.
Know thy customer. Know thy product. Know thy channel. Know thy value
Price, promotion, packaging, etc. establish a "fair" offering by providing an acceptable value for an exchange!
Could we have used promotions to encourage some of the customers to start using their Palm's to manage their retirement savings? Customers, as we all know, come in various shapes and sizes. Typically, a product cannot satisfy all the needs of all the customers all the time. Consequently, customer segmentation or dividing customers into groups of, almost, similar preferences or geography or some other criteria results in better marketing results. If we know what that segment prefers we can make a product to those requirements and the chances of adoption are better.
- Could you imagine how these results would improve if we could further refine these segments?
- Can you imagine trying to ascertain, record, and act on the preferences of this every enlarging portfolio of segments?
- Can you imagine mass producing a product to meet a million segments of one?
Mass customization, i.e. mass producing products to suit a million segments of one each is perhaps the most powerful capability a company can have. Not only do customers love it, but it also saves a bundle on inventory costs. One of the most important capabilities the web has to offer is the ability to mass customize. What was lacking so far was the production and supply chain to match up the marketing and order-taking capability. Many companies, including car manufacturers such as Toyota and Mercedes, have made great strides in this area. On some models of Toyota, one can design and take delivery in less than a week!
Market Research: One of the biggest dilemmas facing a marketing manager in the internet space is how to "know thy customer"? One could argue that since we are looking for customers who use the internet we should conduct research on the net. What if you are introducing a new service that would benefit by converting the "brick" customers to "click" ala Amazon.com? How would you get to that potential customer on the net? The question becomes especially tricky if one is trying to ascertain the preference of customers as they relate to offering a product using "brick" or "click". An online customer is likely to skew the balance towards the internet and an offline one the other way. Using one medium is likely to result in a miscalculation. Then how does one find a representative sample and ensure getting some reasonable data to drive successful decisions? Unfortunately, there are no packaged answers. It depends on the situation. At Prudential, where I was the head of e-Business, we used online and offline research, combined with interviews with the sales force and customer councils to get to the answer.
- Online: We used online polls and surveys; Plurimus.com is an interesting service that gathered data from ISP's logs on what the customers surfed. They combined that with demographic and other information. Their PhDs then churned the jar to come up with models which helped determine usage by variables such as geography and demographics. This was especially useful in advertisements and new feature launches.
- Offline: Surveys; focus groups in our specially equipped labs.
- Customer Councils: This is especially helpful in a B2B setting. Talk to existing customers to get their ideas on what is missing and what would be good to have or add. We had councils that we met with regularly.
- Interview the sales teams: "Who did you lose to and why" is the single most important research question one can ask. Over time a pattern develops that should tell us no survey can.
The key to effective research is not only in asking questions about customer preferences but also answering a key question: How much will you pay for this new feature or service or privilege?
Measuring Results: "How much do you love me" is perhaps the most powerful question one can ask or respond to. My son just stretches his arms as wide and far back as he can, till he is about to tip over. Why is that immensely satisfactory yet not enough in a business situation? Perhaps, because money is riding on the answer! Perhaps, our need to quantify has stripped us of logic. There was a time, not so long ago, when one could end up black and blue just for asking for a business case. Projects got funded and delivered (or not) without an iota of business justification. The pendulum has swung the other way completely. Now, everything is about ROI - perhaps the most flawed measure out there. For starters, one just cannot accurately quantify some things such as revenues on a new venture, and allocate costs in a multi-product, multi-channel function-based organization. Then there is the issue of loss leaders - "investments" one makes so our other investments make money. Ford Escort/Focus (and most small cars) is a net money loser but is critical to get the young buyer who will eventually buy a Taurus which makes money or better yet an Explorer which makes more. Should a negative ROI have dissuaded Ford from building Focus? There are many more reasons to distrust ROIs and NPVs. Personally, I am a big proponent of metrics. I have spent a better part of my career advocating and implementing them for clients. However, I am very careful about what I quantify. There are many measures that provide the data needed to make intelligent decisions. One such measure for the web is the "click to answer" - how many clicks (or screens) did a user have to make/traverse to get to an answer they were looking for? This has a more direct correlation to customer satisfaction than the results from an online survey.
Summary: A good marketing strategy is critical to the success of an e-Business. Marketing must be viewed as part of the overall picture, not a stand-alone component. It must be tightly coupled with all other components such as strategy, processes, technology, and organization. However, marketing decisions are sometimes taken in isolation. That results in "product for product's sake". The best hardware or software is often not the best for every situation. Much like EFT is not ideal for senior citizens and dynamic trading is not applicable to retirement planning. Customer preferences should drive the marketing mix. Complete and thorough research and analysis that weighs in key factors such as product, price, promotion, place, and cost should result in a marketing strategy that is the "best" one for that situation.