Marketspace Strategy – a Discovery Process

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Few managers now doubt that electronic commerce is growing. Forrester estimate that by 2001 ecommerce revenues will total $64 billion in Europe. But there is considerable scepticism about the size and development of the Irish electronic marketplace, particularly the business to consumer market. Many managers are wondering whether this is an evolution or a revolution? But most senior managers that I talk to are interested in discovering the answers to two key questions : How will electronic commerce impact my business? And what should I do about it? This article looks at the strategic issues posed by the Internet, highlights a key insight from my ongoing work in this area and outlines three scenarios for discovering an Internet action plan.

Strategic Issues There are a number of strategic issues lurking in the Marketspace, the environment where companies do business electronically. Marketspace is a term coined by Professors John Sviokla and Jeffrey Rayport of the Harvard Business School. The key issues are;

Technology is redefining the marketplace. A recent CEO survey by Diamond technology partners discovered that about 70% of managers surveyed believed that technology ‘can either upset their company’s plans or provide significant new business opportunities’. For example,Visio the software company (which develops, markets, and supports drawing and diagramming software) are exploiting the internet to provide a customised experience for their customers. They have just launched eVisio where customers can configure the products they want online.

New Virtual Competitors are emerging. Driven by different net based economics many new companies who did not exist in the marketplace are now going online and capturing significant business. One interesting example is E-Trade the virtual stockbroker who is giving the existing competition a good run for their money. Another is Drugstore.com who intend to sell prescription and over the counter drugs on the Internet using convenience as a major selling factor. Have a look at eToys if you want to see how the Internet is making the toy search process easy while competing in the marketspace.

Your most valuable customers may be online. One of the real ‘got ya’s for many businesses is that their most attractive customers are already online. The implication here for business has significant repercussions for their customer retention strategies, which is where we are told the profit is rather than customer recruitment. The CommerceNet Nielsen Internet demographics survey (USA/Canada) results indicate that 25% of the online population have family income over $80,000 (national average is 10%), 50% are professional or managerial and 64% have at least college degrees. The Irish Internet Association surveys provide similar findings although we have a small online population.

Customer Knowledge is poor. Real knowledge of who the customer is and which ones are more important is often very poor and sometimes unavailable. Many companies have decided to go to market through channel partners and as a result have little information about their end users. Even when we deal directly with customers no total view of the customer’s transactions may exist because we are organised by product, or are focused on products and thus don’t really have customer relationships. Note that E-Trade can boast of a 99% loyalty factor in the online environment, and was the 4th Internet Company to achieve $1b valuation.

The Internet Influence is bigger than you think. But despite all this ‘snake oil’ many managers insist that ‘we won’t be selling online’ so we don’t need an Ecommerce strategy, or at least for some time until Ireland goes online, so we should ignore all this hype. What many managers are missing is that customers often go online to do their information searching and then go offline to do their buying.

In a study by Ernst ; Young estimated that around 64% of online consumers would research products online but buy offline. In another more specific study estimates of the percent of consumers looking for mortgages influenced by the web vary from 10-15% today to 50-70% by 2005. Unfortunately, in the Marketspace “the competitor is just a click away” according to Conor o’Toole, Managing Director, Sorrento Business Consulting Ltd. Customer eyeballs do matter. But the response to this is ok! So we need to put our product brochures online! Well, that’s not exactly the full story.

Key Insight – The Online Business Cycle is Customer Centric. Business is never that simple, but the major shift coming in the emerging information economy will be to place the customer in the centre of the business cycle. One American banker put it well recently when he said ‘ Customers don’t care about our stuff, they care about their stuff’. The Internet will be a revolution according to him and the ‘customer will be in charge’. This is “the age of interactive marketing and the customer will be in the driving seat” according to Eoin Grimes, Internet channel manager at ICS building society.

This Marketspace will be customer centric, key activities and interactions will revolve around the customer, not the company. We will need to move from producer land, which is flat, and thinks sequentially in terms business of activities such as Design, Make, Sell and Service, to consumer land. Therefore rigorous user centred design is vital to ensure that the customer experience is optimised online. This is often called human factors engineering. This is seriously an under invested area and many companies would do well to subject their online efforts to a strenuous review from the customer’s perspective. You have “got to put yourself on the customers side of the screen” according to Eddie Murphy, Managing Director of Labyrinth, a leading Irish Internet company.

Technology is the problem. In many ways technology is the problem. Just because you can do something technically does not mean that you should! But we need to get to the heart of the business issues. Mary Cronin suggests that ‘the Internet is a technology in search of a strategy.’ I couldn’t agree more. But ” building commerce transaction sites is a complex business, particularly if you have to link to existing business systems” according to Frank Boyle, managing director of Storm Technology. But “many customers don’t spend enough time in the planning or analysis stage”.

One interesting example of successful business model migration is Edmund’s , an information provider of new car prices and reviews. They were the first site on the Internet to provide this information to customers at no cost and have been transformed by moving to the Internet. They used the net to fundamentally change their business model, giving their product away free online, when previously they charged for it in book form in the marketplace, and changed their income model from book buying consumers to a few online marketing partners including AutoByTel, GEICO and J.C.Whitney. Encyclopaedia Britannica in contrast, who were very successful for over 100 years in the marketplace, did not make out too well in the Marketspace.

Discovery driven action planning. After all is said and done about Ecommerce there is usually more said than actually done. So where do we begin? What we are trying to get a sense of is how much the Internet will impact our business and where should we start our strategic initiatives? This Discovery process, should be followed later by more detailed Design, Development and Delivery phases, which is illustrated above.

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