Marketing Strategies for the New Economy

Does every company need a new-economy strategy. Why or why not Does every company need a new-economy strategy? Why or why not? Reasons why Growing penetration of the Internet and mobile telephony in all segments of the population in US and elsewhere Inherent efficiencies of the Internet to reduce transaction and other costs Strong venture capital support for high technology industries will spawn further innovation Many established bricks and mortar companies have had success with their Internet gambits Reasons why not Many once-promising Internet business models have failed to make money B2B hubs B2C e-tailers Reasons why Growing penetration of the Internet and mobile telephony in all segments of the population in US and elsewhere Inherent efficiencies of the Internet to reduce transaction and other costs Strong venture capital support for high technology industries will spawn further innovation Many established bricks and mortar companies have had success with their Internet gambits Reasons why not Many once-promising Internet business models have failed to make money B2B hubs B2C e-tailers

Seven key elements characterize new-economy technologies: are they advantages or disadvantages? Syndication of information Increasing returns to scale of networks Personalization and customization Disintermediation Global reach 24x7 access Instantaneous delivery Syndication of information Definition? involves the sale of the same good—typically an informational good—to many customers, who then combine it with information from other sources and distribute it. Advantages? A company can syndicate the same informational goods or services to an almost infinite number of customers with little incremental cost. The syndication process can be automated and digitized, enabling syndicated networks to be created, expanded and flexibly adapted far more quickly than would be possible in the physical world. Disadvantages? It is difficult to police the information that gets sent out. For example, copyrighted material could be sent out for free and without permission, causing the authors or companies to lose money. Increasing returns to scale of networks Definition? The lower cost of subsequent transactions arising from positive network effects. Advantages? Companies like Cameraworld.com are benefited by building a community of photo enthusiasts who share insights with one another via the Cameraworld website. Disadvantages? For companies that are new to the market it may be difficult to get customers to switch because of the relationships already developed with other companies. Personalization and customization Definition? Personalization is marketer-driven, in other words a marketer can personalize the message it sends to each customer (i.e. send a reminder of an upcoming birthday). Customization is user-driven, which allows users to specify the nature of what is offered to them. Advantages? Personalization and customization can help build customer loyalty and make it less likely for customers to switch to other suppliers. Disadvantages? Once again, for competitors it is difficult to get potential customers to switch because of the loyalty the have with the company they are currently doing business with. Disintermediation Definition? Marketers reaching customers directly without the expense or complication of distribution channels. Advantages? Cuts out the middleman and his costs, which can increase profits for some businesses. Note, however, that the middleman’s functions typically must still be provided. Disadvantages? Performing the functions the former middleman played may turn out to be expensive and/or difficult. Global reach Definition? Information, digital goods or services available anywhere one can gain access to the Web. Advantages? Reaches distant markets easily and inexpensively. Disadvantages? Global reach is limited to those who can gain access to the Web, which is not available in all parts of the world and all economic levels. 24x7 access Definition: Allowing customers access 24 hours per day, seven days per week, 52 weeks per year. Advantages: Great advantage to customers in our increasingly time-pressed world. Disadvantages: Even though customers have access 24x7, most companies can’t operate all those hours, which can make it frustrating for the customer Instantaneous delivery Definition? Delivery of information, digital goods and service over the Web instantaneously. Advantages? Fast and convenient delivery in our increasingly time-pressed world. Disadvantages? May require more effort by the purchaser, which may offset the convenience. Instantaneous delivery is limited to information, digital goods and services.

Syndication of information Definition? involves the sale of the same good—typically an informational good—to many customers, who then combine it with information from other sources and distribute it. Advantages? A company can syndicate the same informational goods or services to an almost infinite number of customers with little incremental cost. The syndication process can be automated and digitized, enabling syndicated networks to be created, expanded and flexibly adapted far more quickly than would be possible in the physical world. Disadvantages? It is difficult to police the information that gets sent out. For example, copyrighted material could be sent out for free and without permission, causing the authors or companies to lose money.

Increasing returns to scale of networks Definition? The lower cost of subsequent transactions arising from positive network effects. Advantages? Companies like Cameraworld.com are benefited by building a community of photo enthusiasts who share insights with one another via the Cameraworld website. Disadvantages? For companies that are new to the market it may be difficult to get customers to switch because of the relationships already developed with other companies

Personalization and customization Definition? Personalization is marketer-driven, in other words a marketer can personalize the message it sends to each customer (i.e. send a reminder of an upcoming birthday). Customization is user-driven, which allows users to specify the nature of what is offered to them. Advantages? Personalization and customization can help build customer loyalty and make it less likely for customers to switch to other suppliers. Disadvantages? Once again, for competitors it is difficult to get potential customers to switch because of the loyalty the have with the company they are currently doing business with.

Disintermediation Definition? Marketers reaching customers directly without the expense or complication of distribution channels. Advantages? Cuts out the middleman and his costs, which can increase profits for some businesses. Note, however, that the middleman’s functions typically must still be provided. Disadvantages? Performing the functions the former middleman played may turn out to be expensive and/or difficult.

Global reach Definition? Information, digital goods or services available anywhere one can gain access to the Web. Advantages? Reaches distant markets easily and inexpensively. Disadvantages? Global reach is limited to those who can gain access to the Web, which is not available in all parts of the world and all economic levels.

24x7 access Definition: Allowing customers access 24 hours per day, seven days per week, 52 weeks per year. Advantages: Great advantage to customers in our increasingly time-pressed world. Disadvantages: Even though customers have access 24x7, most companies can’t operate all those hours, which can make it frustrating for the customer

Instantaneous delivery Definition? Delivery of information, digital goods and service over the Web instantaneously. Advantages? Fast and convenient delivery in our increasingly time-pressed world. Disadvantages? May require more effort by the purchaser, which may offset the convenience. Instantaneous delivery is limited to information, digital goods and services.

How important is first-mover advantage in the new economy? What are the advantages of being first-mover? First choice of market segments and positions Defines the rules of the game Distribution advantages Economies of scale and experience High switching costs for early adopters Possibility of positive network effects Possibility of preempting scarce resources to suppliers What are the disadvantages of being first-mover? First to make a positioning mistake since firm can’t learn from competitors First to make a product mistake since firm can’t learn from competitors First to make a marketing mistake since firm can’t learn from competitors May have limited resources May experience high switching cost

What are the advantages of being first-mover ? First choice of market segments and positions Defines the rules of the game Distribution advantages Economies of scale and experience High switching costs for early adopters Possibility of positive network effects Possibility of preempting scarce resources to suppliers

What are the disadvantages of being first-mover? First to make a positioning mistake since firm can’t learn from competitors First to make a product mistake since firm can’t learn from competitors First to make a marketing mistake since firm can’t learn from competitors May have limited resources May experience high switching cost

Exhibit 15.5 A Flow Model for New-Economy Marketing Decision Making Stage in Customer Experience Process Direction of Information Flows Direction of Product Flows Direction of Cash Flows Customer insight PfC Product promotion and brand building PgC Transaction PnC Product delivery Customer support and service Product return or disposal This chart raises a key question: for which stages in the customer experience process are new economy tools useful? (See next slide) P = Producer C = Customer

How should marketers decide what new-economy tools to apply? Can we digitize? Can we do so first, and/or be proprietary? How valuable and time-critical is what kind of information? Can we reach and build relationships with our target market? Measurably effective? efficient? Customer Insight Product promotion and brand building Transaction Product delivery Customer support and service Product return or disposal Instructor: Ask students to explain each of the concepts that title the rows and columns in this chart. Then work through an example (or have students do so in small groups, then report) in which, for a given real company or student project, the rows are considered in sequence, and examined via the questions across the top. Students should put check marks or pluses in cells where the answers to the questions are favorable for that stage in the consumer experience process. Out of this analysis should emerge good candidates in the customer experience process where new-economy tools might be fruitfully applied. Then, students should ask which specific applications in each row support the company’s positioning in the market? Which might deliver temporary or sustainable competitive advantage? Which have the greatest potential strategic impact?

Many of you have thought of ideas for entrepreneurial new-economy ventures. What are some key questions we have learned to date to test the merit of those ideas? The basics already covered throughout this book Is the market attractive? Large and growing market, favorable macro trends Is the industry structurally attractive? Five forces favorable on balance Driving forces favorable Does my idea satisfy some target customers’ wants and needs better than current solutions? Who is the target market? What benefits will we offer them? Do we have some basis for establishing sustainable competitive advantage? Unique or proprietary technology or capabilities Difficult for others to imitate or duplicate What questions have often been overlooked by would-be entrepreneurs in the new economy Where will our revenue come from? Who will pay? For what? How much will they pay? When?

Answer… Is the market attractive? Large and growing market, favorable macro trends Is the industry structurally attractive? Five forces favorable on balance Driving forces favorable Does my idea satisfy some target customers’ wants and needs better than current solutions? Who is the target market? What benefits will we offer them? Do we have some basis for establishing sustainable competitive advantage? Unique or proprietary technology or capabilities Difficult for others to imitate or duplicate What questions have often been overlooked by would-be entrepreneurs in the new economy Where will our revenue come from? Who will pay? For what? How much will they pay? When?