1. Integrating Forward Meeting demand and managing customers

2. Objectives  Define the Internet economy  Discuss the return to relevance and value  Describe customer relationship management

3. What is the Internet economy?  Term coined by Don Tapscott and published in his best-selling 1995 book The Digital Economy.  Refers to how Internet technology will replace the industrial economy as an engine for growth and change.  “The economy for the Age of Networked Intelligence is a digital economy” (Tapscott, 1995).

4. Internet economy layers  Internet Infrastructure  manufacture infrastructure products (backbone, servers, fiber optics, routers)  Application Infrastructure  provide products (services) needed to carry out activities in digital market (web server s/w, tools)  Intermediary/Market Maker  increase efficiency of markets by facilitating interaction of buyers & sellers (brokerage, portal)  Internet Commerce  generate product & service sales to consumers or businesses over the Internet (product sales, advertising) Source: Cisco/UT Austin, 2000

5. Revenues by layer Source: Cisco/UT Austin, 2000

6. Reality check  There is no such thing as “Internet Time”  Time favors incumbents  Branding is not a strategy  Entrepreneurship cannot be systematized  Investors are not customers

7. Still…  The Internet still changes everything  Customer power is increasing  Product selection and customization  Objective competitive information  The Internet changes your job  The distinction between Internet companies and non-Internet companies is fading fast  The real wealth creation is yet to come

9. Dimensions of Customer Value 1.Conformance to requirements 2.Product selection 3.Price and brand 4.Value-added services 5.Relationships and experiences Source: Marchak, 2000

10. Dimensions of Customer Value 1.Conformance to requirements 2.Product selection 3.Price and brand 4.Value-added services 5.Relationships and experiences Source: Marchak, 2000

11. Product selection  Largest direct PC manufacturer and one of the largest PC manufacturers.  Sells directly to customers, bypassing retailers and passes on the savings.  Has much less inventory than its competitors and much faster deliveries. Example #1

12. What Rules Did Dell Break?  You can’t customize every order for every customer, so offer pre-configured models that can’t be changed.  Retailers recommend specific models to customers, so the channel cannot be bypassed.

13. Where is the Value? Traditional PC Value Chain Component Suppliers Intel, Microsoft Manufacturer IBM, Compaq, Hewlett-Packard Retailer Computer City, Future Shop Customer Individuals, Corporations Example Company Step in Value Chain Products and Price Chips $500 Software $500 PC $1500 PC $1750 Value Added R&D, New features Assembly Selection, Advice

14. Where is the Value? Direct PC Value Chain Intel, Microsoft ManufacturerRetailerCustomer Individuals, Corporations Example Company Step in Value Chain Products and Price Chips $500 Software $500 PC $1600 Value Added R&D, New features Assembly, selection, advice Component Suppliers

15. What are the Consequences of the Dell Business Model? Immediate  Decline of computer retailer.  PC industry margin squeeze – consolidation and bankruptcy. Future  Offer non-PC products in an electronics marketplace.

16. Price and brand  Online retailer of books, CDs, electronics, and other products  Uses software to create detailed customer profiles and make customer- specific offers Example #2

17. Price/cost  Amazon cuts costs of retail outlets and intermediaries.  Amazon’s distribution system is less expensive than its competitors.  Amazon gets paid before paying the distributor, whereas in the traditional distribution system it is the other way around.

18. Customization  Amazon uses the data obtained from customers to offer personal buying recommendations.  Amazon’s innovations have included one-click shopping, its popular bestseller list ranking sales on the site, and the associates program.

19. Brand  More personalized products and Web site experiences.  Broader offering of products are built into brand experience, allowing more revenue and profit per customer.

20. What are the Consequences of the Amazon Model? Immediate  Dominant Internet shopping brand.  A lot of valuable information about customer buying. Future  Wal-Mart of the Internet?

21. Relationships & experiences  Free sharing of MP3 music files.  Napster’s business model is tracking what people are searching for and charging advertisers. Example #3

22. Growth of Napster 0 2,000 4,000 6,000 8,000 10,000 Oct. ’99 Nov. ’99 Dec. ’99 Jan. ’00 Feb. ’00 Mar. ’00 Apr. ’00 May ’00 June ’00 July ’00 Aug. ’00 Sep. ’00 Oct. ’00 CAGR for 2000 = 550% Unique Monthly Visitors (000) Source: IDC

23. Online Sales of Digital Music 0 200 400 600 800 1,000 1,200 1,400 199920002001200220032004 ($M) U.S. Digital Music Download Sales, 1999–2004 Source: IDC

24. Napster Old Solution: Retailer  Expensive  Takes time to go to store and shop  Paying for songs you don’t want  Consistent and reliable quality  “Human touch”  Categorization  Limited Selection New Solution: Napster  Low cost  Convenient  Only get the music you want  Less consistent quality  Searching/downloading issues  No categorization (yet)  Greater selection

25. Music Value System Artists Record Industry Music Consumers Thousands Big 5 Hundreds of Millions Retailers Dozens Example Company Step in Value Chain Products and Price Value Added Songs, Albums: $1.40 per album Content CDs: $13.46 each Production ($1.65), Marketing & Distribution ($11.19) CDs: $16.98 each Selection, inventory CDs and songs

26. Implications of Napster Model  Buyer is more important than supplier or distribution system.  Revenue loss for retailer.  Eliminates physical inventory and distribution issues.

27. What are the Consequences of the Napster Model? Immediate  Online community building.  Consumer power over recording companies and artists. Future  End of intellectual property rights?  End of paid-content industry?  Beginning of flat-fee content industry?

29. What is CRM?  Customer Relationship Management  Integrated functionality for marketing, sales, customer support and call center requirements

30. CRM Functionality  Call center management  Sales Force Automation  Contact / lead management  Expense reporting  Customer contact point management  Order entry  Order tracking  Service management  Content management

31. The Value of CRM: Understanding Customers  Understanding customer needs allows the organization to design customer- specific levels of service and track profitability at the customer level  This increases value per customer and customer retention

32. Types of Information CRM Brings Together  Sales force reports  Market surveys  Focus groups  Electronic sources  Call center data  Customer billing  Customer information systems  The Internet

33. Possible CRM Solutions Advantages Industry leaderIndustry leader Large pool of talent to choose fromLarge pool of talent to choose from Less expensive than SiebelLess expensive than Siebel Better meets business needsBetter meets business needsDisadvantages ExpensiveExpensive Fewer Clarify-qualified professionalsFewer Clarify-qualified professionals Risks losing programming and business knowledge if programmers leaveRisks losing programming and business knowledge if programmers leave Siebel Clarify Custom Program

34. Implementation rates for CRM

35. Customer Relationship Framework Opportunistic Store Opportunistic Spot Loyal Chain Loyal Link SCOPE single good (service) many goods (services) DURATION shortlong Opportunistic Spot Price competition No customer loyalty Internet information intensifies competition Opportunistic Store Price competition Bundled product offerings Power shifts to intermediaries who have store brand Loyal Link Retain best customers Relationship value to the customer increases over time Systems improve branding and customer service Loyal Chain Attract and retain the best customers Pricing customized to individual based on bundle of goods and services

36. Framework Implications  Branding is key  Controlling costs is critical  Predictive pricing will be used in spot and store markets  Relationship pricing will be used in link and chain markets

37. Business Requirements for Successful CRM  Differentiate the offer  Generate high repeat business  Provide comparison shopping  Encourage self-management  Personalize and customize  Build collaboration and community

38. Summary  Defined the Internet economy  Discussed the return to relevance and value  Described customer relationship management