building digital brands

SynopsisSynopsis

Building Digital Brands

Online has always taken a back seat to offline in brand building. Yet online offers the

best options for building a meaningful brand, options that didn't exist only a few years

ago. Companies without a solid digital brand strategy are literally being left behind as

leaders build new digital brands.

Reflecting on the current state of online advertising, the majority of online marketers

are doing a terrible job of building their digital brands. Advertisers are fighting tooth

and nail to produce the world's worst advertising, actually destroying their existing

offline brands in the digital realm.

For the most part, if one looks at ads that run during top TV programs or that appear

in top magazines, one will find quality in the advertising (even if the ads are a bit dry

and boring). But if one looks at a top web site and views a few dozen ads, it will be very

difficult to find quality advertising. In effect, the bulk of the ads online do more harm

than good to the brands they are trying to build.

In one industry after another, aggressive Internet upstarts are putting established

brands at risk, creating very strong brand recognition and enjoying explosive visitor

growth. The reason may have less to do with the established brands themselves than

with their managers.

Marketers know what a brand is in the physical world: the sum, in the consumer’s

mind, of the personality, presence, and performance of a given product or service.

These "3 Ps" are also essential on the World Wide Web. In addition, digital brand

builders must manage the consumer’s on-line experience of the product, from first

encounter through purchase to delivery and beyond.

1


Digital brand builders should care about the consumer’s on-line experiences for the

simple reason that all of them—good, bad, or indifferent—influence consumer

perceptions of a product’s brand. To put it differently, on the Web, the experience is

the brand.

Example

If a consumer buys lipstick from a retailer in the physical world and has an unpleasant

in-store experience, she is more likely to blame the retailer than the manufacturer. But

if the consumer purchases that same product from Procter & Gamble’s Reflect.com

Web site, her wrath is more likely to be directed at P&G. Thus the on-line marketer’s

objective shifts from creating brands—at least as defined in the off-line world—to

creating Internet businesses that can deliver complete, and completely satisfying,

experiences.

Yet many marketers, particularly those whose experience is limited to the off-line

world, lack a coherent framework and concrete methods for achieving the broader

objectives of on-line brand building. These marketers need an approach for aligning

the promises they make to consumers, the Web design necessary to deliver those

promises on-line, and the economic model required to turn a profit. These three

elements—the promise, the design, and the economic model—together form the

inseparable components of a successful Internet business, or what might be called a

digital brand.

This project is an attempt to propose to the industry the right approach to build and

sustain their brand in an online environment.

2


How much impact is the Internet really having on advertising and marketing? Is it just

another emerging niche medium with some peculiar creative capabilities and

constraints? Or might it transform consumer marketing in the same way that network

television revolutionized consumer culture and commercial practice four or five

decades ago?

Interviews with marketers reveal that few believe the Internet will change their

approach to advertising. Most see it as little more than a complement to traditional

marketing practices, and don’t expect it to reduce expenditure on broadcast and print

media or change the form, pricing, or delivery of advertisements. Their view is

probably a reaction to the early hype about the Internet and the World Wide Web,

which created unrealistic short-term expectations among marketers and frustration

with the inadequacies of the delivery technologies among consumers.

We take a contrary view. We believe that Internet advertising will account for a

growing proportion of overall advertising

expenditure. Moreover, advertising — and

marketing in general — will adopt practices first

developed or deployed on the Internet. As the

technology improves, the impact of Internet

advertising will increase and become easier to

measure, and the gap between this new precise, interactive marketing capability and

conventional "fuzzy" passive media will widen. Over the next few years, advertising

agencies and consumer marketers will be under pressure to change their whole

approach to marketing communications.

3

Growth of Internet as Marketing Medium

Growth of Internet as a Marketing

Medium


Marketers will become more accountable for their results, and they will pay more

attention to building a total customer relationship. Offering consumers value in return

for information will become vital in eliciting their preferences, which in turn will be

critical to customizing advertising. And companies’ entire marketing organizations will

be progressively redesigned to reflect interactions with consumers on the Internet.

For ad agencies, fees based on results will become standard. The economics of Internet

advertising are likely to make current business models obsolete. New capabilities will

be required as creative production speeds up and becomes more closely integrated with

marketing activity. A deep understanding of enabling technologies will become a

prerequisite for fresh forms of advertising.

Our views on the evolution of Internet advertising and its impact on traditional

marketing may seem provocative to some, premature to others. But the intriguing

marketing experiments taking place on and off the Internet suggest it is time for

consumer marketers to begin looking to networks for new ways of thinking about the

marketing theories and approaches on which they have long relied — and to begin

capturing the lessons Internet advertising holds for all their advertising practices,

online and conventional.

4


2.1 CAUTION: CHANGES AHEAD

Looking at today’s Internet advertising to predict what tomorrow will bring is about as

helpful as using a rear-view mirror to watch the road ahead. But a point of view about

what online advertising will look like in three to five years’ time can and should

influence current management A number of fundamental forces are currently

reshaping Internet advertising: the near-daily emergence of new technologies that

improve measurement, targeting,

and data interpretation; the strenuous efforts of primarily entrepreneurial marketers

to make business use of the Web; and the establishment of patterns in consumers’ use

of these new interactive networks. Thanks to the impact of these forces, tomorrow’s ads

will differ from today’s in the shape they take, in the metrics available for gauging their

effectiveness, and in the pricing structure that governs their purchase and sale.

New Shapes

The first and most obvious change in advertising will be in what consumers see on their

screens. Ads are likely to change in terms of their content, the type of customization

they employ, and their delivery to the consumer.

Content

Aspirations to transcend today’s form of Internet advertising will first be realized in

the content of ads. The development of new technologies such as virtual reality and

chat, coupled with consumers’ growing preference for material that is directly valuable

to them, is driving the emergence of new forms of content. Three main types are on the

horizon: experiential, transaction-oriented, and sponsored content.

Experiential content will allow consumers to "experience" the ownership of a product,

service, or brand. The best current examples let the user test out a product. Sharp’s

Web site offers a personal tour of the Zaurus personal digital assistant in which

consumers can input calendar or address information exactly as they would if they

5


used the product in real life. At The Gap’s site, customers can "try on" outfits and mix

and match separates from the current range. In the future, technologies such as virtual

reality will make ads even more experiential: customers will feel as though they are

test-driving a new car, or walking down the aisles of a grocery store.

Transaction-oriented content will invite consumers to make a purchase directly from

an ad. Advertising content will become increasingly oriented toward transactions.

Indeed, the Internet may already be changing consumers’ buying behavior,

particularly for considered purchases such as cars. Prospective car buyers who are

looking for product information before making a decision can obtain more information

more quickly through the Internet than by any other means currently available.

Having done their research in advance, they are more ready to buy at the point when

they actually encounter a manufacturer or seller.

The implication for marketers is simple: they need to make it possible for consumers to

carry out transactions easily and seamlessly, or risk losing sales to competitors.

Consider Casio, which uses Virtual Tag technology developed by First Virtual to

enable customers to make purchases from an Internet banner ad. An Internet user can

learn about Casio products, purchase a watch on line, and select the means of delivery

without ever leaving the banner.

Sponsored content will blur the line between editorial matter and advertising. A lot of

sponsored content already exists on the Internet — for example, Nissan sponsors

weekly soccer tips on Parent Soup in association with the American Youth Soccer

Association — but by and large it tends to resemble the "brought to you by ABC"

model familiar from traditional media. The emergence of advanced forms of hybrid

commercial–editorial content will be driven by consumers’ ability to "tune out"

straightforward commercial messages, be they banners, interstitials (ads that pop up

while users wait for a requested Web page to appear), or standard forms of

sponsorship, and by advertisers’ desire to influence attitudes in more subtle ways.

6


By way of analogy, consider the growing use of product placement in films and

television (James Bond drives a BMW Z3 in his latest movie) as marketers seek to

make their offerings stand out from the clutter of ads and break through the cognitive

filters that allow consumers to discount ordinary commercials. The network

environment offers ample scope for hybrid content: entire sites can be funded and co-

managed by advertisers (as with Procter & Gamble and ParentTime), while avatar

technologies bring advertisers into chat rooms. However, the issue of editorial

independence and the possibility of consumer rejection or backlash may ultimately set

limits on the pursuit of this approach.

Customization

Anyone who has been offered a credit card they already hold can appreciate the need

for greater customization or "addressability" in mass-market advertising, and even in

direct mail. Indeed, the level of response that advertisers receive largely depends on the

accurate and timely targeting of messages, as do the number of transactions and the

degree of loyalty that are generated.

The Internet is supposed to enable marketers at last to target their offers to that elusive

"segment of one." Yet advertising on the Internet has so far been targeted mainly on

the basis of editorial content, just as it is in traditional media. Part of the reason is

technical, though the development of tracking software that allows ads to be delivered

only to target audiences is overcoming this obstacle. Consumers’ reticence has been a

further barrier, but as Internet users grow more willing to provide information about

themselves, two types of customized content will emerge.

First, content will be customized by means of information inferred about users. The

Ultramatch technology recently launched by Infoseek, to take one example, makes it

possible to target those Web users who are most likely to respond to a given ad. Based

on neural networking technology, Ultramatch observes users’ behavior when they put

out queries and explore subjects, collecting the results in its database. Advertisers using

the service can select individuals according to their interests and thus pitch their

campaign to a receptive audience. Ultramatch also allows them to ascertain which

7

2.1 Internet Advertising Objectives


individuals are responding to ads, and to move the ads to places where they will attract

similar users.

Second, ads will be customized on the basis of information voluntarily provided by

users. The key to making this approach work will be to overcome consumers’ desire for

privacy or anonymity by offering them rewards for personal details in the form of

special information, discounts, or promotions. On ParentTime, for example, users who

enter the ages of their children receive relevant care information as well as Pampers

ads geared to those age groups. Experience suggests that consumers are willing to

release information about themselves as long as they are the prime beneficiaries.

Organizations such as etrust (an initiative sponsored by leading companies to develop

electronic commerce) and the Internet Marketing Council take a similar view. The

IMC requires marketers to provide a "giveaway" or discount before they can gain

certification. This scheme is specifically designed to prevent information provided by

consumers from being misused in e-mail.

Delivery

The recent hype about "push" technology

on the Internet might suggest that this will

be the dominant vehicle for delivering

advertising on the Web. We believe the

reality will be more integrated, combining

today’s "pull" format Web sites with

"push" technology such as PointCast to

deliver ads to people according to their

interests. Triggered banners (ads that

appear when certain key words are

mentioned) and interstitials are early

examples that point the way. Consider how

one automaker’s ads are pushed to

chatroom participants when the topic of

8


cars comes up, or how a user waiting for content to be downloaded is sent an ad related

to that content.

Marketers must ask themselves a number of questions: What is the right balance?

Where can push technology be exploited most effectively? How much push are users

willing to take before they begin to tune out?

As online advertising develops, advertisers will discover that the Internet is the only

medium that can deliver certain types of message, such as multi sensory and interactive

ads. These new forms will allow advertisers to achieve several objectives — some of

them unattainable via conventional media — simultaneously (Exhibit 2.1). They are

likely to make Internet advertising more important in the overall marketing mix as

marketers capitalize on their unique capabilities. At the same time, our glimpse of the

emerging future casts doubt on the merit of current heavy investments in big brand

sites that require content to be "pulled," or in banner ads that — like most on the

Internet today — merely replicate the forms of advertising that exist in the physical

world.

New Metrics

The Internet affords marketers an unprecedented opportunity to measure the

effectiveness of their advertising and learn about their viewers. The capacity to

measure impact sets the Internet apart from other media. Measurements available for

television, for example, estimate the total size of an audience; what they don’t do is tell

an advertiser how many people actually saw an ad, or what impact it had. On the

Internet, by contrast, marketers are able to track click-throughs, page views, and leads

generated in close to real time. The result: measurements that are more precise and

meaningful than anything available in traditional media.

The emergence of these new metrics will affect not only ads themselves, but also the

way that marketers and agencies develop them. First, more precise measurements will

yield better insights into the effectiveness of advertising spend. It will be easier to

9


identify ads that don’t work, and to find out why. Advertisers will also start to expect

the content of ads to be renewed more frequently in response to audience reaction.

A new product from Infoseek offers a hint of things to come. Copy Testing in a Box is a

tool that combines the immediate feedback of the Internet with sophisticated targeting

technology to allow marketers to refocus their Internet campaigns to the most

responsive customer segments within a matter of days.

Second, advertisers will be able to assess the impact of their ads earlier in the spending

cycle. As a result, they will have the flexibility to launch and roll out a campaign in

such a way that it can be changed before most of the money is committed. This will

affect the very process of creating Internet ads, and perhaps spur advertisers and

agencies to devise new ways of organizing around it.

New Pricing

Whereas marketers tend to have fairly uniform objectives in traditional media, such as

shaping attitudes in television or obtaining responses in direct mail, the Internet, as we

have seen, allows them to pursue several different goals simultaneously. In the same

way, the standard types of pricing used in traditional media, such as CPM (the cost of

exposing a message to a thousand viewers of TV or readers of print), will give way on

the Internet to pricing that varies as widely as the objectives of the ads themselves.

Indeed, the technology can support several pricing mechanisms at once: pay per click-

through, lead, transaction, dollar spend, or conventional CPM. This kind of variegated

pricing is already appearing in the marketplace: P&G has pushed for pricing per click-

through; CD Now pays Web sites commissions on the transactions they generate; and

Destination Florida pays according to leads generated. Similarly, DoubleClick is

introducing an advertising network, DoubleClick Direct, whose rates are based on

results, and has already signed up clients including Alta Vista and GTE’s Internet

service.

10

2.2 Emerging Internet Pricing Models


Because of these factors, pricing for Internet

advertising is likely to be multi-tiered, based on

results, and tied to marketers’ objectives. At least

three pricing mechanisms will coexist: pricing by

exposure, response, and action (Exhibit 2.2).

Pricing per exposure — for instance, via a rate card

based on CPM — will prevail for ads placed on the

Internet to generate awareness of a product or

brand. Over time, this form of pricing should

become more refined. As measurability and

Metering improve, advertisers will want to pay only for impressions on their target

customers, while publishers will eagerly search for ways to extract premium exposure

rates. The result is likely to be the establishment of an additional tier of "effective"

CPM rates.

Pricing per response will establish itself as the standard for simple consumer responses

such as click-through. Prices will vary according to the types of user a site attracts and

how much advertisers are willing to pay for access to them.

Pricing per action is similar, but more elaborate. A site publisher might charge an

advertiser more for a consumer who downloads a piece of software or provides some

demographic information, say, than for one who merely clicks on a banner. We believe

that the ability of Web publishers to charge advertisers for the true value they receive

is likely to make the difference between profit and loss. The price for a lead generated,

for instance, could reflect the prospect’s potential lifetime value; if it did, sites would

charge automotive OEMs and white goods manufacturers different prices for prospect

leads. As a result, a fee per action or sales commission is likely to emerge as a major

pricing mechanism for Internet advertising over time.

How quickly and how far these models take hold in the near term will depend on how

risk is shared between marketers, agencies, and sites. Results-based pricing gives

11


marketers the opportunity to shift some of the risk of failure to sites or agencies.

Publishers and broadcasters in traditional media have usually been loath to take on

this kind of risk. However, Internet publishers should find risk sharing attractive if it is

appropriately priced, as it could boost the advertising revenues on which their success

depends.

Pricing in general is fraught with issues. Will site publishers demand a degree of

control over the creative execution of ads to ensure quality, for instance? We believe

that the sharing of risk in Internet advertising will ultimately be determined by the

prevailing balance of power, which will vary from advertiser to advertiser and site to

site, and shift over time. Large, well-known, "safe" advertisers may be able to secure

results-based pricing more easily than others, particularly at times when site publishers

are struggling to make their economics work.

It will be in the best interests of marketers, site publishers, and even agencies to

prevent the lowest common denominator setting the industry’s pricing standard. To

settle for a simplistic, unsophisticated, "one size fits all" pricing scheme would mean

leaving a lot of money on the table. The widespread acceptance of multi-tiered,

performance-based pricing will make the Internet both distinctive and highly lucrative

as an advertising medium.

12


2.2 THE SPILLOVER EFFECT

The changes now taking place in the shape, measurement, and pricing of advertising on

the Internet may seem dramatic enough in themselves, but we believe they will have a

much broader impact on marketing practices in general. This spillover effect will occur

for four reasons.

First, new ways of advertising on line will inspire new creative approaches elsewhere.

Second, the Internet will prompt marketers to reevaluate their use of traditional media.

Third, Internet advertising will help marketers to improve their understanding of

consumers’ needs, preferences, and product usage. Finally, once marketers get a taste

for the measurability of Internet ads and the tailored pricing it enables, their

expectations of the effectiveness and measurability of other media will rise.

New Creative Approaches

The timeliness and direct tone of advertising on the Internet will increasingly inspire

marketers operating in other media. Seeing the daily updates of information that the

Web makes possible and the lengths to which online advertisers must go in order to

keep users’ interest (for instance, renewing banners weekly) may sharpen their appetite

for replicating Internet practices on TV and in print.

The notion that creative approaches pioneered on the Web will spill over to more

traditional media should surprise few. Historically, the emergence of new media has

always prompted content changes in existing media. Consider how print changed after

radio, and later television, arrived on the scene.

13


Fidelity Investments recently attempted to mimic the immediacy of the Internet in its

television advertising. It refreshed its ads on a daily basis by incorporating current

news headlines. However, the campaign met with mixed success, perhaps because it

lacked a distinctive point of view.

Marketers’ adoption of creative techniques pioneered on the Internet will grow as

technologies like broadband, WebTV, and virtual reality begin to influence traditional

media. Wink and Worldgate are developing technologies that allow viewers to "save" a

commercial to watch later, or to obtain more detailed information. These technologies

are in their early test stages on television.

The enormous creative flexibility offered by the Internet will increase pressure for

more choices of delivery in traditional media. The (probably apocryphal) story of

Helena Rubenstein asking to buy an extra three seconds for a 30-second spot to realize

her creative vision suggests how we may start to question accepted standards and

constraints in traditional media.

Marketers may also need to reexamine the theories that underpin their advertising

practices. As we noted, online advertisers have found that banners must be renewed

frequently if consumers are to keep clicking. Their experience defies the conventional

wisdom in advertising that any ad must be seen at least four times to make an

impression. On the Internet, greater impact can be achieved by showing a wider range

of ads that are repeated less often. Insights like this cast doubt on the effectiveness of

current television campaigns, most of which are still based on old ideas of frequency.

14


Reevaluating Media Investments

Everyone has heard the advertiser’s lament: "I know 50 percent of my advertising is

working; I just don’t know which 50 percent." The greater measurability of Internet

advertising will prompt marketers to reevaluate all their investments in media,

especially in the addressable categories of print and direct marketing. Not only are

response rates often higher in Internet advertising, but the cost of reaching target

customers can be lower, with better information received in return. As a result, we may

well see a migration of targeted marketing spending from direct mail and other

traditional media to the Internet.

Consider a recent example. AT&T used the Internet to generate awareness of and

shape attitudes toward its toll-free collect-call service, which is mainly targeted at 16- to

24-year-olds. The company had previously found this audience difficult to reach cost-

effectively through print or broadcast media. The results of the online effort were

excellent. Top-of-mind awareness increased by over 30 percent, and AT&T opted to

replace its print advertising with an Internet campaign.

The traditional approach to customer response and lead generation has been to use ads

in trade magazines and customer response or "bingo" cards. However, findings

announced by one large publisher of trade titles indicate that more than two-thirds of

bingo cards either go unanswered or are not responded to promptly because of the time

it takes to qualify and manage leads. The study suggests that the Web is an excellent

tool for generating quality leads and may even supersede bingo cards in time.

Migration of this kind will reallocate the slices of the advertising pie. Interviews we

conducted with marketers reveal that most believe their initial spending on the Internet

did not come at the expense of other media (in other words, their overall advertising

budget grew). But many expect that future increases in their Internet expenditure will

be taken from other areas, probably print and/or direct marketing. They also see their

Internet advertising budgets growing much faster than their traditional media budgets.

15


Migration

may also

take place

in non-

addressable

media

spending.

Striking

levels of

media

displacement are already evident among Internet users. Most notably, TV viewing has

declined among a third of adult Internet users (Exhibit 2.3). Similarly, in a recent Wall

Street Journal poll, 21 percent of respondents cited spending more time on their

computer or in using online services as a reason for watching the major TV networks

less than they did five years earlier. When marketers accept the idea that brand

building can be accomplished on line, some spending on TV, radio, billboards, and

other non-addressable media may migrate to the Internet.

Getting Closer To The Consumer

We believe marketers will soon start to use the Internet as a kind of testbed for

campaigns planned for print, TV, or radio. One leading-edge marketer, London

International, the maker of Durex condoms, is already trying out advertising concepts

on its Web site before transferring them to other media where their effectiveness is

16

2.3 Declines in Usage of Traditional Media


harder to track. It is testing three concepts ultimately destined for conventional media:

"On-line Lovers," "Dr Dilemma," and "The Nurse." By monitoring pages selected,

click-throughs, responses generated, and other indicators, the company is able to

discover which parts of a prospective campaign work and which don’t, thereby

reducing the risk of launching the equivalent of a box-office flop.

Conducting market research and obtaining feedback from consumers can be expensive

and difficult. The Internet offers cost-effective alternatives to conventional methods,

and may yield more revealing information. Several of the marketers we interviewed

said that their presence on the Web had taught them a tremendous amount about their

customers’ views of their products and services. They maintain that the Web offers a

non-judgmental way of providing feedback and ideas, and is less intimidating for

consumers to use than standard toll-free numbers.

Marketers at Fidelity, London International, and Coors found that users of toll-free

numbers mainly called to ask questions about products. On the other hand, Internet

users, even when given answers to the most frequently asked questions, would often

provide feedback about the quality of a product, new variations on it, and ways that it

might be changed. To be sure, some of the additional interaction may be down to the

different demographic profile of Internet users, but gathering information of this kind

is becoming an increasingly important way to use the Web.

To gather deeper feedback, marketers are experimenting with Internet focus groups.

LiveWorld has already hosted several sessions for NFO, a company specializing in this

area. The advantage of conducting a focus group on line is that participants are

anonymous and can speak their mind without worrying what others in the group think.

In addition, geographically dis-persed participants can be assembled at a fraction of

the usual cost. London International is planning to conduct an online focus group to

assess the effectiveness of its Web efforts in the near future.

17


Finally, the opportunities for testing new product ideas on the Internet are legion,

particularly for electronic or intangible items such as magazine covers, entertainment

concepts, and personal financial services. The possibilities are just beginning to be

exploited

Rising Expectations

Two features of Internet advertising — the measurability of its impact and the

probability of some form of results-based pricing emerging — are likely to raise

marketers’ expectations of traditional media. If they do, pressure may build for a more

accurate measurement system or a shorter measurement cycle. The demand for greater

accuracy in measurement is already coming from the broadcast networks in any case.

The coding technology tests being carried out by SMART (the emerging competitor to

Nielsen), by Nielsen itself, and by its joint effort with Lucent to develop Media TraX

indicate that improvements are technically feasible.

In fact, it would not be surprising if new measurement tools and tech-niques originally

designed for the Internet were to spill over and be applied to traditional media in the

not so distant future. Moreover, in those traditional media that are already more

measurable, such as print, we foresee increasing pressure from advertisers for results-

based or tiered pricing like that offered on the Internet.

The developments we have described are necessarily speculative, and may not

materialize as broadly or as quickly as we suggest. All the same, they are worth

watching out for because of their implications. Most of the media industry is affected

by the billions of dollars spent every year on consumer marketing. If key advertisers

18


were to reallocate their media budgets, the impact on traditional media could be

profound.

As the aspirations, techniques, and expectations associated with Internet advertising

spill over into traditional media, both marketers and advertising agencies will have to

rethink the capabilities they bring to bear on selling products and services.

2.3 IMPLICATIONS FOR MARKETERS

The growing importance of Internet advertising and its effect on conventional

marketing will have profound implications for practitioners. First, the Internet model

will set new standards for building relationships in the physical world, challenging

many current practices and expectations. Second, a new concept, value exchange, will

emerge as a core marketing capability. Finally, the move toward organizational

structures and processes designed around consumers’ experiences with specific

products or services will accelerate further.

New Standards In Relationship Management

The Internet will set new standards for total relationship management in both breadth

and depth. "Breadth" means that a relationship will increasingly last for the entire

ownership experience, including the time before and after the purchase of the product

or service. Consider Coors, which used consumer feedback received via the Web

during both the development and promotion of its beverage Zima — thus involving

customers at all stages in the product life cycle.

19


"Depth" reflects the degree of interaction with consumers at any given point in their

experience of a product. The book retailer Amazon.com, for instance, is beginning to

use the information it gleans from customers to create value-added services such as

suggestions about books that a particular reader might enjoy. This raises the bar for

competitors on the Internet and in the physical world, posing a challenge that other

players must meet if they are to retain customers’ loyalty.

The Internet’s role in consumer relationship management has important consequences

for marketers. Network-based interactions must be integrated into the rest of a

business, with all that this entails.

If car purchasers make fewer trips to the showroom, say, doing their own online

research into different models instead of talking to salespeople, dealers will need to

rethink the way they manage the whole consumer relationship. Eventually, customers

may go to them only to place an order; at this point, the role dealerships play may no

longer justify their cost, and they will have to find new ways to offer buyers value if

they are not to disappear. Moreover, as consumers’ behavior changes, so will the skills

that salespeople need. And how are those salespeople going to be compensated when

consumers make their purchases through channels other than dealerships?

Design and funding is another key area. If the Internet’s role is to grow beyond

advertising, the design of online activities should probably not be constrained by the

priorities of a single functional area such as marketing, or by the limitations of the

marketing communications budget.

Value Exchange As A Core Capability

Much of the Internet’s potential relies on the creation of a dialogue between consumer

and marketer in which information is exchanged for value. Marketers need to develop

the new skill of rewarding consumers for giving them access to personal information

such as who they are, what they like, and what they buy. This reward may take the

form of discounts toward future purchases, or benefits such as valuable information or

a personalized product or service.

20


This process of value exchange will become critical as new standards are created to

protect consumers’ privacy. The proposal announced by Netscape in May 1997 to

capture information on consumers’ hard drives rather than on marketers’ computers

marks a step in a new direction with its implicit acknowledgement that consumers will

"own" information about themselves and control the release of that information to

marketers. The demand for value among consumers is likely to grow as they become

aware of how highly marketers prize their demographic profiles, product preferences,

and transaction histories.

A few marketers are beginning to manage this process effectively. In exchange for basic

information such as name, address, age, and income, Vogue provides readers with

discounts, special offers, and previews of forthcoming articles. Saturn’s approach is to

offer convenient access to information. Consumers who reveal a small amount of

information about themselves are able to use Saturn’s interactive pricing center to

research new cars, saving them trips to a showroom.

Organizations Centered On Consumers

As the Web merges marketing with other business processes such as customer service,

it will put more pressure on the organization of most marketers. The coming of age of

interactive networks will accelerate the move toward new organizational models in

which marketers will structure their various functional capabilities around an

integrated customer front end.

For a real-life example, take the insurance company USAA. Its customer center

receives and manages all communications with consumers, whether direct via

telephone, mail, and the Internet, or indirect via intermediaries. The rest of the

organization revolves around the customer center. Sophisticated information systems

help the company to process interactions and maximize their value.

The benefits are many. Customers feel that USAA knows them better, and the

21


company is quick to respond to a complaint or learn about important market changes

such as a cut in a competitor’s price in a particular territory.

As more and more companies reorganize themselves around their customers, intranets

linked to the Internet will become crucial. They will make it economically feasible for

managers within an organization to have more information about consumers — and

more interactions with them — than ever before.

2.4 IMPLICATIONS FOR AGENCIES

The rise of Internet advertising, with its unique economics, may well call the validity of

current business models and processes into question. It will also compel agencies to

rethink the way they create and develop campaigns, and the skills and capabilities they

need to survive.

New Business Model

So different are the revenues generated by conventional and Internet advertisements

that traditional agencies will have to think carefully about their approach to online

advertising if they are to pursue it profitably. At present, most agencies incur high

fixed costs in developing campaigns. Big creative teams and the like were fine in the

days when agencies could rely on the commissions they earned from large media buys

associated with a small number of creative executions. On the Internet, however, this

cost structure is inverted: the creative element of the total advertising cost is much

larger in relation to the media element. The resulting commissions will no longer be

sufficient to cover agencies’ high operating costs.

22


We believe that traditional agency business models simply will not work for Internet

advertising. A trend toward retainer compensation is already emerging. Agencies may

well seek to enhance their revenue streams by taking a cut of the results of their efforts

in the shape of a commission on leads or sales generated. In future, agencies will

increasingly share in the risk of their advertising instead of — as they do today —

leaving all of it to be borne by marketers.

Compensation models will be transformed. The measurability of Internet advertising

makes results-based pricing more feasible than in any other media, as we have seen.

Some examples are already in evidence. Site Specific is using performance-based

contracts for clients including Duracell, CUC International, and Intuit’s TurboTax

division. Though these arrangements are not yet making it any money, they are

expected to do so as advertising effectiveness increases. In time, results-based

compensation will probably spill over into traditional media as the measurement of

advertising impact improves. It will then have its most profound impact, affecting

agencies’ core business and revenue source.

New Capabilities

This vision of the future calls agencies’ current capabilities into question. Many have

seen themselves as the guardian angel of the brands they represent. But agencies have a

patchy record of orchestrating brand-building activities across the full range of

marketing disciplines: media advertising, direct mail, promotions, and so on.

The emergence of interactive media means that agencies must not only manage a

broader and more complex mix of marketing tools, but also master radically different

skills. Three main gaps will need to be filled:

1. Inform creative execution with a deeper understanding of enabling interactive

technologies. Such an understanding scarcely exists in agencies today, except in

some of the more specialized enterprises such as Site Specific and AGENCY.COM.

Traditional agencies may find their technological and creative skills are not

23


sufficiently integrated to compete with the specialist Internet ad agencies, which

enjoy a higher profile and more confidence among marketers in this area of work.

2. Integrate one-way and response-oriented campaign design skills. Interactive

advertising blurs the boundaries between traditional advertising, direct marketing,

and customer services — normally separate preserves run by different individuals.

Agencies will need to learn to integrate these skills in their design efforts.

3. Increase the speed and responsiveness of creative production. The immediacy of

interactive networks will make growing demands on the pace and frequency of

creative production. Agencies are currently organized around work processes with

relatively generous cycle times. Today, it is acceptable to take three to six months to

design one campaign, and to run it for up to two years. Tomorrow, a campaign with

300 one-on-one executions will have to be designed in two to three months, and

adapted continuously in response to real-time consumer feedback.

In summary, the future holds many challenges for agencies. The emergence of new

business models and the need for new capabilities are likely to shake up an industry

that has been under pressure for some time. Some agencies have shown that they can

customize their processes and economics to specific industry needs like those of grocery

retailers or auto dealers. Now they must learn to institutionalize these capabilities

within their organizations or spin off a cluster of flexible, technology-savvy boutiques

with low fixed costs. Viewed another way, the emergence of Internet advertising may

represent an opportunity for renewal — a chance for agencies to reclaim the high

ground of brand stewardship that some marketers argue they have let slip away in the

past two decades.

The emergence of Internet advertising is likely to have wider implications for business

than many imagine. Its effects will not be confined to the online world, but will extend

to traditional marketing activities and processes. For those who look closely, Internet

24


advertising holds many more opportunities and risks than is commonly assumed. And

the payoff waiting for those who rise to the challenge will more than justify the efforts

required.

25


Many companies are waking up to the potential of the interactive consumer market.

Not only are the numbers of users of on-line and Internet services soaring, but the

majority of people who are subscribing to these services tend to be young, well

educated, and richer than average. In short, they make particularly good marketing

targets.

Interactive media is likely to revolutionize marketing for many consumer companies

because it allows marketers to deliver real-time, personalized services and content, one

consumer at a time. It is what we call digital marketing. Digital marketing leverages the

unique and powerful characteristics of interactive media: it is addressable, meaning

that each user can be identified and targeted separately; it allows for two-way

interaction; services can be tailored for each individual customer; and purchases can

be made and influenced on line. However, to capture the benefits of digital marketing,

companies must integrate interactive media into their existing businesses and

marketing programs. And that is difficult to achieve.

Most consumer companies are struggling to know what to do and how. The old models

of marketing simply do not work in this new world, and as a result most of today's

digital marketing applications are uninspiring (as anybody who has ever been on the

Internet can probably attest), falling far short of the potential of interactive media.

Research is being conducted to define a new marketing model that will help build and

evaluate digital marketing applications.

26

Marketing to the Digital Consumer

Marketing to the Digital Consumer


3.1 TYPES OF DIGITAL MARKETING

Several broad types of attractive digital marketing opportunities already exist, and

there is evidence that marketer who aggressively pursue one or more of these

opportunities are starting to make profits.

First, marketers can use interactive media to provide better service at lower cost by

delivering information about a product or service. UPS, for example, uses an Internet-

based service to allow customers to track the whereabouts of their packages.

A second opportunity is to build relationships with on-line consumers. Interactive

media can be used to identify attractive users or prospects (an automotive company can

learn the names of interested car buyers and forward them to the closest dealer); it can

enhance customer loyalty by providing extra services; and marketers can use what they

learn about their consumers to cross-sell new products or services.

Third, marketers can use interactive media as a new channel. In 1995, Hot Hot Hot, a

small company that produces sauces, generated some 30 percent of its revenue from

sales through its Web site. And using interactive media, airlines are increasingly

bypassing travel agents to sell tickets, thus saving significant commission costs. For

example, United Connections, a disk-based service allowing travelers to make their

own bookings, is estimated to save airlines up to $50 for a typical $500 round-trip fare.

Digital marketing is an attractive proposition for many more categories than is

commonly assumed. We would argue that digital marketing can play an important role

in any category in which it makes good business sense to build relationships one

consumer at a time.

27


3.2 NEED OF A NEW MARKETING MODEL

The traditional 5P-marketing model — price, product, promotion, package, place — is

not particularly helpful to marketers seeking to capture the benefits of digital

marketing. It assumes, for example, that communication is one way (from the marketer

to the customer), when interactive media so clearly offers an opportunity to establish a

dialog; it assumes a mass-market environment, when interactive media allows

interaction with individual consumers.

The digital marketing model that has been developed is based on a pragmatic

assessment of what seems to work, and what does not, in the interactive age. It is built

around five apparent factors for success:

(1) Attracting users

(2) Engaging users' interest and participation

(3) Retaining users and ensuring they return

to an interactive media-based service

(4) Learning about their preferences

(5) Relating back to them to provide the sort

of customized interactions that represent

the true "value bubble" of digital

marketing (Exhibit 3.1).

28

3.1 Attractive Characteristics of Media


This last point is critical as in most cases it will require marketers to make their

digital marketing initiative part of the existing business system. This presents

important internal and external challenges, such as how to integrate the digital

marketing initiatives with existing marketing programs or information systems, or

how to manage potential channel conflicts with the sales force or traditional

distributors.

Each of the five success factors suggests a number of issues that marketers must

address.

Example

What are the most effective means to attract users to an interactive application? What

is the role of branding? How should you choose an Internet address? What is the

optimal "linking" strategy for a particular marketer? While the answers to many of

these issues will be specific to a given marketer, research is beginning to identify the

factors that allow companies to get more from their digital marketing efforts.

Over the next three to five years, digital marketing is likely to become an increasingly

significant part of the consumer marketing landscape. For many marketers it will

present formidable opportunities. For those who cannot keep pace, it might pose a

serious threat. It is therefore imperative that marketers begin to think about the role of

interactive media in their industry, and prepare to take appropriate action.

29

Exhibit 3.2 Bazee

Avnish Bajaj & Suvir Bajaj Founders,

Bazee.com

This auction site lets you buy or sell a range of products. Revenue is not

from ads, it is from fees for listing buyers and sellers on the site; cyberlaw

complexity keeps it out of the actual transactions. It successfully applies

B2B and C2C models; Bajaj claims, "Rs 10 crore worth of trading on the

side. It follows the Retail Model.


30


In one industry after another, aggressive Internet upstarts are putting established

brands at risk, creating very strong brand recognition and enjoying explosive visitor

growth (Exhibit 4.1). The reason may have less to do with the established brands

themselves than with their managers. Marketers know what a brand is in the physical

world: the sum, in the consumer’s mind, of the personality, presence, and performance

of a given product or service. These "3 Ps" are also essential on the World Wide Web.

In addition, digital brand builders must manage the consumer’s on-line experience of

the product, from first encounter through purchase to delivery and beyond.

31



4.1 Consumers Turning to Digital Brands


Digital brand builders should care about the consumer’s on-line experiences for the

simple reason that all of them—good, bad, or indifferent—influence consumer

perceptions of a product’s brand. To put it differently, on the Web, the experience is

the brand.

Example

If a consumer buys lipstick from a retailer in the physical world and has an unpleasant

in-store experience, she is more likely to blame the retailer than the manufacturer. But

if the consumer purchases that same product from Procter & Gamble’s Reflect.com

Web site, her wrath is more likely to be directed at P&G. Thus the on-line marketer’s

objective shifts from creating brands—at least as defined in the off-line world—to

creating Internet businesses that can deliver complete, and completely satisfying,

experiences.

Yet many marketers, particularly those whose experience is limited to the off-line

world, lack a coherent framework and concrete methods for achieving the broader

objectives of on-line brand building. These marketers need an approach for aligning

the promises they make to consumers, the Web design necessary to deliver those

promises on-line, and the economic model required to turn a profit. These three

elements—the promise, the design, and the economic model—together form the

inseparable components of a successful Internet business, or what might be called a

digital brand.

32


4.1 HOW TO BUILD AND MANAGE DIGITAL BRANDS?

How do marketers build and manage digital brands? The marketer’s first goal should

be to select the core promise for a truly distinctive value proposition appealing to the

target customers. Five of these promises are especially effective.

Digital brands that make tasks—from buying a book to searching for the best price—

faster, better, and cheaper offer the promise of convenience. Amazon.com, like most

first-generation electronic businesses, is fundamentally built on this promise.

Brands that make people feel like winners in whatever activities engage them offer the

promise of achievement. E*trade, for example, promises to help consumers manage

their finances successfully. It has gone beyond the basics—a portfolio of financial tools

and research—to offer many helpful innovations, such as securities-tracking and -alert

services.

Games and other activities designed to engage (and even thrill) consumers offer the

promise of fun and adventure. Often these activities make use of "immersive"

technologies, which, for example, allow electronic spectators of a marathon to hear a

runner’s heartbeat. Digital brands such as Quokka Sports are building their entire

businesses around immersive technologies.

Such companies as GeoCities (which helps consumers express themselves by building

and displaying their own Web pages) offer the promise of self-expression and

recognition. Ralston Purina Dog Chow’s site allows consumers to create home pages

that display pictures of and stories about their pets.

Clubs or communities offer the promise of belonging, as well as concrete advantages.

Women, for example, can exchange stories and tips with one another at the

iVillage.com site. Mercata.com provides a more tangible benefit by aggregating the

purchasing power of its community of users and thus helping them get better prices for

a broad range of merchandise.

33


4.2 FROM PROMISE TO DELIVERY

The promises made by digital brands are not unique to the Internet, but the medium’s

interactive capabilities make it easier for digital brands to deliver on their promises

quickly, reliably, and rewardingly. They often do so with a scope that their landed

counterparts would be hard-pressed to match. In practice, this means that promises

must be translated into specific interactive functions and Web design features

collectively giving consumers a seamless experience. Such design features as one-click

ordering and automated shopping help deliver the promise of convenience;

collaboration tools such as chat rooms or ratings functions make it possible to realize

the promise of belonging.

Managers shouldn’t underestimate the challenges of this translation process. What, for

instance, does it mean to build a digital brand around a promise of convenience in the

grocery industry? What kind of content, if any, do you need? And how about chat

rooms, personalization, one-click ordering, and collaborative filtering? Digital brand

builders can’t afford to fall short of what they have promised, since competitors are

always a click away, but they waste capital if they offer more than is necessary to make

sales and keep customers.

Technology dramatically differentiates digital brands—for both customers and

shareholders—in ways that will become increasingly clear as they enter their second

and third generations. To be certain of identifying all of the designs that make it

possible to deliver on a promise and to build a viable economic model, today’s digital

brand builders must explore at least six groups of design tools. These tools are

sufficiently robust technologically to help create a distinctive and relevant user

experience, and they are beginning to demonstrate their ability to make money for the

digital brand builders using them.

34


Personalization Tools

Tools such as the software that creates personalized interfaces between e-businesses

and customers, hold tremendous promise for value exchange and contextual commerce.

To be sure, the value of personalization has yet to be fully demonstrated in practice.

(Fewer than 15 percent of visitors to Yahoo! have chosen to set up a "My Yahoo!" page

for themselves.) Personalization tools also present risks, as well as real operational

challenges, such as managing privacy, intrusiveness, and opportunity costs. For that

reason, many practitioners still question the short-term return on investments in

personalization tools.

Collaborative Tools

They facilitate word of mouth, or what might be called "branded person-to-person

communications"—for instance, the ratings that buyers offer sellers on eBay, the

Lands’ End "shop with a friend" feature, Raging Bull’s discussion boards, and Pert’s

viral marketing (which encourages consumers to e-mail their friends instructions for

obtaining free Pert Plus samples). Collaborative tools such as consumer ratings, though

essential for content- and community-oriented digital brands, are underutilized.

Purchase-process Streamlining Tools

They eliminate such physical-world constraints as the need to walk into a store to

purchase a product. Amazon’s one-click ordering system, for example, eases

transactions by sparing repeat customers the inconvenience of inputting transaction

data. Peapod’s shopping lists save consumers time by recording the products they

purchased previously. The fact that most e-shoppers drop out of the buying process

during the last clicks suggests that improvements along these lines might be very

worthwhile.

35


Self-service Tools

They allow customers to obtain answers and results without the delays and

inconsistencies that more often than not characterize human efforts to provide

assistance. Such tools include software for tracking orders, preparing statements, and

changing addresses on-line. Although incumbents often have difficulty integrating these

Web-based tools with legacy systems, the tools are indispensable for banks, retailers,

and other e-businesses that handle large volumes of transactions.

Do-it-yourself product design tools

They allow consumers to customize products and services, either with the help of

configuration options or from scratch. Dell Computer, for example, lets customers

design their own systems on-line by choosing from a range of options; customers of

Music.com and Listen.com can download the music of various artists onto a single

compact disc. But the need to create manufacture-to-order systems to capture the

potential of these tools may make them uneconomical in industries that, unlike

software and music, are not based on information.

Dynamic-pricing tools

They overthrow the tyranny of the fixed retail price, allowing prices to fit the

particular circumstances of individual transactions. Such tools, which come in many

forms, include eBay’s and uBid’s auctions and Priceline’s offer to "name your own

price." Dynamic pricing, a potential "killer application" in many categories, could

permit customers to make a wider variety of trade-offs between price and value than is

possible in the current world, where most sellers offer a single fixed price to all buyers.

36


4.3 RETHINKING THE BUSINESS MODEL

As digital brand builders align the promise and the design, they must also align the

economic model that will sustain their businesses. For most managers of established

brands, the very process of taking them on-line will force a fundamental

reconsideration of the business. Digital brands offer a richer consumer experience than

their physical-world counterparts, so they can and should make money by tapping into

broader revenue and profit pools than any single physical-world business might enjoy.

Fortunately, the range of economic opportunity for a digital brand expands

dramatically as it draws from traditionally unrelated revenue and profit pools.

The economic model must be expanded because building digital brands around

consumer experiences is expensive. A number of different sources of revenue ultimately

makes it possible for a digital brand—and the e-business that supports it—to deliver a

richer experience to the consumer. Since on-line consumers expect combinations of

product types and functional benefits different from those expected by off-line

consumers, marketers must adopt several different economic models to succeed.

There are six basic economic models (Exhibit 4.2). The success of an Internet brand

rests on the skill with which it combines two or more of them.

37


1. Retail model: Vendors or products are aggregated to facilitate

transactions for buyers.

2. Media model: A company aggregates audiences to generate revenue from

third parties, such as advertisers, in the manner of the

music channel MTV, the CBS television network, and

Newsweek magazine.

3. Advisory model: An expert (such as an investment adviser or a personal

shopper) offers consumers unbiased advice for a fee.

4. Made-to-order manufacturing model: A business manufactures customized products,

such as locomotives, in one-time production runs.

38

4.2 New Business Model Combinations On-line


5. Do-it-yourself model: A business (such as McDonald’s or IKEA) provides

for or facilitates consumer self-service.

6. Information services model: A business (such as ACNielsen or J. D. Power and

Associates) collects, processes, and sells information.

Priceline, for example, combines the retail and media models and therefore enjoys

economics that are vastly superior to those of other travel agencies, both on- and off-

line. Applying the retail model, the company aggregates suppliers of travel services,

such as airlines. Applying the media model, it "monetizes" its audience to third-party

advertisers by suggesting products and services to its customers.

Dell also combines two models—the made-to-order manufacturing and do-it-yourself

models. The company offers computer shoppers an unparalleled choice of features and

permutations. In addition, its on-line menu and instructions guide consumers through a

selection process that is speedier and less prone to error than one handled by live

customer service representatives. For Dell, the superior process is also less costly.

Creating winning digital brands requires managers to reconsider how they view both

the Internet and branding. Off-line brands have long thrived by delivering narrow

solutions to limited customer needs. On-line, however, customers have learned to

expect that the companies they patronize will meet a much fuller spectrum of their

needs and desires. To succeed on-line, those companies will have to create full-fledged

Internet businesses, or digital brands, that can fulfill this expectation.

39


Can a marketer be trusted with sensitive personal and financial information?

Consumers increasingly expect their identity and personal information to remain

confidential when they go on-line to shop, and that, coupled with fear of on-line fraud,

is what stops many consumers from even considering digital transactions.

The Georgia Institute of Technology, in its "Tenth WWW User Survey," found that

only 4 percent of on-line users routinely register at Web sites, and at some sites two-

thirds of those not registering report a lack of trust as one of their reasons. They will

become buyers only when marketers overcome the lack of trust that paralyzes many

would-be Net shoppers. In response to those security concerns, marketers are working

to build trust with consumers through their on-line interactions. The level of trust

grows as marketers and consumers engage in a gradual "value exchange," through

which consumers provide marketers with personal information and are rewarded in

turn with products they actually want.

McKinsey research on more than 50 e-businesses shows that the on-line marketers

pacing their industries do so by embedding trust into their interactions with

consumers. They are forging a broad logic of trust based on constant and interactive

value exchange between the buyer and seller. A company that creates and nurtures

trust finds that customers return to its site repeatedly. CDnow, Amazon.com, and

Onsale generate well over half of their sales from site loyalists. Contrast this with a

typical underperforming retail site, where only a quarter of sales come from repeat

buyers. Sites without a core of loyal customers must devote more capital to acquiring

customers and eventually may find it difficult to survive.

40

Building Trust in Brands

Building Trust in Brands

5.1 Building Trust: Creating Site Loyalties


5.1 CLIMBING THE TRUST PYRAMID

Building trust that leads to satisfied customers is complex—but essential—for

marketing executives. We have identified six elements that build a "trust pyramid"

(exhibit 5.1). The base of the pyramid shows the three core elements needed just to be

in the game: state-of-the-art security, merchant legitimacy, and robust order

fulfillment. Winning marketers move well beyond the basics with more subtle trust

builders that differentiate them from the also-rans: consumer control, tone and

ambience, and, at the highest level, consumer collaboration. As the baseline level of

trust and security rises, these points of distinction become more critical. Taken

together, the six elements of trust create the confidence needed to turn browsers and

ordinary customers into site loyalists.

41


State-Of-The-Art Security

Use the best security measures on your site, and tell your consumers about them in

easily understandable language. Shoppers at Netmarket are assured of "guaranteed

safe shopping" with a no-compromises promise: "At Netmarket, you can shop with

confidence. We use the latest encryption technology, digital certificates, secure

commerce servers, and authentication to ensure that your personal information is

secure on-line." Marketers at Lands’ End also understand how to reassure their

customers on security issues. Its site states, "You have no credit card risk. Period."

Merchant Legitimacy

Brands are important on the Web. They help shoppers sort out their choices when they

have a limited range of clues as to the quality and function of a product. Familiar

names with established records of performance go a long way toward building trust—

so long as marketers continue to deliver that performance through their Web ventures.

If your company lacks a recognizable consumer brand, three tactics can get you in the

game:

1. Sell branded products. Netmarket, for example, depicts thousands of brands on its

site, from Panasonic DVD players to Reebok shoes. The site’s tag line is "name

brands at warehouse prices."

2. Ally your product or service with an established brand. Tel-Save, an unknown

phone service provider, secured a privileged position on America Online, a brand

recognized by 40 percent of US households. Now known as Talk.com, Tel-Save

signed up 1.8 million new customers in the year after the deal was signed in

December 1997. Its sales increased by 47.2 percent from 1997 to 1998.

3. Encourage prospective customers to sample your services through low-risk trials

and creative offers. E*trade lets prospective investors take part in contests without

risking real money. The Wall Street Journal offers a two-week free trial of its

interactive edition. If consumers like it, an annual subscription costs $59 (print-

edition subscribers pay $29 for it).

42


Fulfillment

Great security and brands can go only so far; a trust-building site must also fulfill

orders efficiently and with minimal hassles. Nothing alienates a buyer more than

getting thrown off-line, finding the site frozen, or making a wrong entry that causes the

loss of pages of entered information. And at some sites, prospective buyers must slog

through a lengthy registration process before discovering that sales taxes, shipping, and

handling charges greatly increase the total price of their purchase. The best practice:

explain all costs, and have an infrastructure that gets the right product to the right

buyer in a reasonable period.

Leading Web companies are streamlining the purchase and fulfillment process.

Amazon.com has led the industry with a "1-click" mechanism, through which buyers

enter an address and credit card information for the first sale only. After that,

Amazon.com remembers the details. Marketers also are beefing up customer service to

provide fast and accurate answers to queries arriving on-line and through call centers.

In practice, even the best companies will sometimes stumble in fulfillment. But a

mishap can be an opportunity for a company to show its best face and build trust with

its clientele. Consider the experience of Hastings Entertainment and its gohastings.com

site. The company announced its site with newspaper ads offering a package of three

popular video movies for $9.99. The trouble was that buyers reaching the site found a

notice saying it was still under construction. By afternoon, the message had been

replaced with a toll-free number through which users could place an order for the

videos. Buyers also got a T-shirt as part of gohastings.com’s apology. What could have

been a marketing meltdown was transformed into a reasonably happy story.

Control

43


Even with credit card security assured, consumers learn to trust the marketers they

deal with only when they know that they—not the marketers—control access to

personal information. Marketers who ask permission for personal details are taking the

smart approach. E*trade, for example, discusses the benefits provided by cookies on a

user’s hard drive (the cookie ensures that preferred settings appear without the

customer logging in each time), then asks the user for permission to place a cookie.

Some marketers are recruiting consumers to serve on panels that independently audit

privacy policies. Others use third-party audit services such as those of the Council of

Better Business Bureaus (BBB). Sites may qualify for the BBBOnLine seal when they

adopt robust privacy policies and agree to consumer-friendly dispute settlement

procedures. More broadly, consumers like to feel that they are in control of the buying

process. Accordingly, marketers at the GMBuyPower site provide consumers with

comparative information on competitors’ cars. After all, consumers will go somewhere

to find that information. GM builds trust by letting consumers know that it

understands that they have a choice and that they control the buying decision.

Tone And Ambience

Trust building encompasses more than the strictly technical aspects of a Web site.

Consumers want to know that marketers will handle their personal information with

sensitivity. Without ironclad confidentiality, consumers will never move ahead with a

value exchange. Leading marketers post an easy-to-read privacy statement and explain

how they collect and handle customer information. Lands’ End addresses this issue on

its Landsend.com site, stating, "We’ll never misuse the information you provide us."

Design and content are other critical elements. "E-Commerce Trust," a January 1999

study by Cheskin Research and Studio Archetype/Sapient, points to the importance of

44


ease of site navigation as one influence. A site’s appearance also says a great deal about

a marketer. Value America, a virtual retailer, stresses the importance of "white space"

and presents products in an uncluttered, friendly setting that shoppers find appealing.

Drawing on the next wave of personalization technologies, marketers will be able to

customize the on-line store ambience for each consumer. For example, on a music site,

a classical music aficionado might receive an audio selection and visual merchandising

that would reflect that sensibility; a heavy-metal fan would enjoy a more raucous

presentation.

Marketers set the right tone with their customers when they are straight about all

aspects of the relationship, such as how they deliver services. Amazon.com now lists all

its "publisher-supported placements" and explains its acceptance of co-op funds after

controversy over its unstated policies. Other marketers carefully indicate that pricing

may vary according to the channel through which a product is sold. The home page of

Tower Records notes, "Pricing at towerrecords.com applies for on-line purchases only.

Sale pricing may not apply in Tower retail stores."

Collaboration

A site nurtures trust when it encourages its customers to inform each other about the

company’s product and service offerings. A Yankelovich Partners survey reveals that

consumers consider other users of a product to be the most trusted source of advice

when considering a purchase of that product. Thus, chat groups let consumers query

each other about their purchases and experiences. Amazon.com customers, for

example, have posted hundreds of wildly divergent opinions about a single book.

One site that built an entire business and brand by innovatively collaborating with

consumers is eBay. Its governing model of trust is its feedback forum, where buyers

and sellers rate each other. The detailed records of transaction histories show eBay

users what they can expect from other users. The Web site also uses its network of

45


users to spread the word about its activities, a tactic known as "viral marketing." That

is, users can e-mail auction notices to their friends.

Corporations also can choose to separate themselves from the opinion process by

linking customers to external sites. Auto manufacturer Saturn has links to auto

magazines and price and ratings guides.

46


5.2 BUILDING TRUST

Bringing the six elements of trust to your Internet value proposition, though, does not

automatically lead to deep, trusting relationships. That comes through a step-by-step

process in which the consumer and marketer exchange value. Each time the consumer

volunteers some personal information, the marketer rewards the consumer with a more

personalized service. This mutual give-and-take eventually leads to an advanced

collaboration based on trust.

The research has identified four stages of trust building:

Attraction

At the first stage, the consumer browses the site and even makes a transaction. No real

relationship exists between the marketer and the consumer, and none may be

warranted. The best strategy is to provide the consumer with information, without

demanding any in return. At first blush, this may seem like an imbalance between what

marketers give and what they get back. But what the consumer is giving the marketer

is something quite valuable: time and attention, along with a view of how the site is

traversed.

The time and attention translates into the "mind share" needed to create a brand

preference. The average consumer on Ralston Purina’s Dog Chow Web site, which

offers no product for sale, spends more than six minutes per session learning how to

care for pets. That’s far more time—and concentration—than consumers devote to a

30-second TV ad.

47


User-Driven Personalization

At the second stage, consumers start shaping Web pages to their specific tastes. For

example, CDnow customers can personalize their home pages with favorite artists and

wish lists. The company shows that it is willing to deliver some value to the consumer

before gaining financially. Charles Schwab now invites users to set up a personal page

through the MySchwab service, where users can not only track stocks but also get

customized sports news, weather information, and even cartoons. Users aren’t required

to open a Schwab account to do so.

Marketer-Driven Personalization

In the third stage, marketers begin using insights provided by consumers to beam

information back to them. Thus, CDnow uses its knowledge of consumers—developed

at the earlier stages of trust—to suggest products they might like, which consumers

then rate as either on- or off-target. As the process continues, CDnow learns

consumers’ preferences and zeroes in on what they really like. It is worth emphasizing

that marketers should rein in their urge to make immediate use of data and

personalization technologies. This approach takes patience, a trait lacking at many

marketing organizations. Too often they bombard consumers with promotional offers

as soon as they get their hands on an e-mail address. We suggest a gradual approach, as

nothing aggravates many Internet users more than unsolicited e-mail.

A best practice is to let the user set the pace of personalization and contact from

marketers. User-driven personalization should precede marketer-driven offers. Recent

research by Professor Youngme Moon of the Harvard Business School has shown that

premature personalization can backfire. Moon found that consumers were less likely to

buy products pitched to them through messages if the messages were based on

information they had not given to the marketer themselves. According to "Is Your Web

Site Socially Savvy?" a May–June 1999 Harvard Business Review article, consumers

were more likely to buy when the message was personalized and based on information

they had volunteered.

48


Trust-Based Collaboration

At the final stage, the marketer and the consumer work together closely. The consumer

gives the marketer access to the most sensitive personal information (family, finances,

or health) and in turn gains customized experiences and consultative problem-solving

assistance. In our view, very few on-line marketers have reached this level of trust with

their consumers.

The pace of value exchange varies by industry and situation. For example, mortgage

shoppers may provide financial information in their very first interaction if they need a

quick answer. In other situations, the process moves more slowly. And because costs

rise as marketers go up the trust staircase, they must decide just how far they need to

go to create the most profitable relationships. Trust building at a basic level may be

enough for some marketers, particularly if greater trust does not bring greater

spending by consumers.

Only by sustaining trust can marketers expect to establish enduring relationships with

consumers, and it is by keeping a central focus on that idea that marketers build a

value exchange that delivers consistent and progressive mutual benefits. With the six

building blocks of trust in place, marketers should be able to chart a course for

building great on-line businesses.

49


Fabmart is one e-tailer, which keeps hitting the headlines often, as much for its new

initiatives, as well as for reports that say that Rupert Murdoch and Dhirubhai Ambani

have looked at equity stakes in the e-tailer. So, what makes this 10-month-old online

store click? Fabmart went online on September 29 last year, and processed 12

transactions in its very first day of operation. What followed were days of struggle

when the store survived on minimal transactions. But shoppers kept trickling in, and

there was no day when Fabmart failed to attract at least one request. The store now

registers about 250 transactions a day, with the average transaction amount hovering

at around Rs 200.

A leading IT magazine in its recent survey on Indian e-commerce engines picked

Fabmart as the ‘best focused’ e-commerce shop. More recently, readers of Chip

magazine voted Fabmart the ‘best virtual superstore’. Fabmart acknowledges that not

all e-commerce ventures will survive and expects “most of them to fall by the wayside”.

Talking to Praxis, K. Vaitheeswaran, Vice-President, Marketing, Fabmart, outlined

how his company’s e-tailing model is different from horizontal portals and other e-

commerce engines. Being an early mover, and now an established one, the Fabmart

model is now considered a benchmark for financial institutions looking at e-commerce

ventures.

50

Case Study – FABMARTCase Study –

FABMART


6.1 HOW IT DIFFERS

According to Vaitheeswaran, horizontal portals offer all things to all people, and online

shopping will remain a small part of such ventures. These portals are not focussed e-

commerce engines. Fabmart believes in providing depth rather than width. Starting

with books and music, it now offers a wide collection from within these categories and,

according to Vaitheeswaran, it focuses on providing high levels of customer

satisfaction. The store is designed on the ‘find what you need fast’ policy. Take the

bookstore, for instance. A shopper can use the option of searching either by title, or

first/last name of the author. There is also an additional facility of advanced search for

those who would like to search by combining two or three options.

The search options are similar for the Fabmart music store. Once the customer has

selected the items to be purchased, he/she then clicks on the ‘add to shopping cart’ icon

and goes through the entire shopping process. At the time of confirming his/her order,

the shopper is given a reference number that can be used to track order status.

Fabmart is banking on the virtual store’s depth in offerings and customer satisfaction

initiatives to add value to its e-tailing business. And this, it hopes, will be the final

differentiating factor.

51


6.2 THE FULFILMENT PROCESS

It’s easy to lose an online customer. For him to prefer an online store to a

neighbourhood shop would have been a difficult decision involving a fundamental

behavioural change. And the e-tailer just cannot disappoint the customer in service or

delivery. In fact, Fabmart is to shortly introduce an online call center (live chat) where

a customer can get instant feedback on his/her queries. Fabmart’s fulfilment process

can be broadly classified into:

Sourcing involves collecting various customer orders from wholesaler/distributor/

production agencies on an ongoing basis.

At the consolidation stage, the sourced items from the wholesaler are segregated

according to individual orders and finally packed on the basis of individual

consignments. Once the allocation of each order is completed, shipments are made

through Blue Dart couriers. The key element here is Fabmart’s completely automated

52

Delivery

O rd er Con solid ation

Sou rcin g

6.1 Fabmart – Fulfillment Process


and Web-based solution, which works on a virtual inventory model where Fabmart

does not hold any inventory at all.

The store is still able to meet the delivery commitment within 72 hours typically.

Fabmart claims to ship about 95 per cent of its orders within 48 hours, a feat it can

achieve because of its rapport with the big book and music companies in India.

Fabmart also has a seven-day, noquestions- asked return policy under which customers

can return any items, with a small note stating the reason for dissatisfaction, and

Fabmart bears all shipping expenses.

53


6.3 THE PAYMENT MECHANISM

The e-tailer has put in place two kinds of security mechanisms – one for debit/credit

card transactions and the other for confidentiality of personal details. Fabmart and

Citibank launched what they tout as ‘the world’s most secure’ payment process on the

Internet in December 1999. In this mechanism, the card number is not provided to the

online store but given directly to the bank. In addition, the customer needs to key in the

PIN to ensure that no misuse of the card is possible. And since this is done on an SSL

(Secure Socket Layer) encrypted link, accessing the card number while it is in transit is

not possible. Sensitive customer details are accessible only to officials in the rank of

Vice- President and above and not to all employees. Fabmart’s privacy policy clearly

states that customer details are not sold, rented or leased out to third parties.

6.4 WHY FABMART OUTSOURCES

Fabmart outsources most functions which have no direct bearing on the customer. For

instance, hosting is managed by Bharti Telecom, the payment gateway is outsourced to

Citibank and networking is in the hands of Wipro and Compaq. According to

Vaitheeswaran, Fabmart has identified four areas likely to impact a customer: the

brand, the relationships with book and music companies, the store itself, and customer

fulfilment. All other functions are outsourced. Even customer fulfilment, to an extent is

managed through outsourcing. Blue Dart delivers goods to 850 points across the

country. Similarly, execution of responses to Fabmart’s customers is done through an

external eCRM firm. If a portal is compared to a human body, all its parts except the

brain can be outsourced, and Fabmart claims to be the brain.

One frequently asked question is how viable is outsourcing. While it is true that

Fabmart tends to spend more resources on the outsourcing model, according to

Vaitheeswaran, it certainly pays, especially when the time gained is considered. If

Fabmart had to develop and execute all the operations by itself, it would not have been

possible for the company to make the site functional in six months.

54


6.5 FABMART’S LONG-TERM VIABILITY

Fabmart’s advantage may be that it is a pure e-commerce venture; advertisement

revenues are not counted upon. In fact, the store does not welcome ads, except those

relating to books and music. Any available virtual real estate is used for in-shop

promos. With initial VC funding of about Rs 5.5 crore, the online store recently

mopped up another Rs 25 crore with second round funding from venture capitalist

Chrysalis. With a registered customer base that is likely to grow, the store is confident

about revenue flow, and Vaitheeswaran says Fabmart hopes to break even by its third

year when it expects business turnover to touch Rs 45 crore.

A jewellery store was launched recently, while a grocery shop is on the anvil, with the

ultimate aim to emerge as a focused virtual superstore. The jewellery store, which went

online in June with about 5,000 items, targets the impulsive buyer. And jewellery

transactions are expected to drive up the average value of an online transaction. The

grocery shop will attract online customers for need-based purchases. Fabmart’s aim is

to achieve a mix in customer demographic profile – with both impulsive and need-

based consumers. Fabmart would also need to gear up for competition from players

such as Shoppers’ Stop and eCrosswords (ecommerce portals of Shoppers’ Stop and

Crosswords, expected to be online by October).

55


With a customer base of over 25,000, Fabmart hopes not too many will switch loyalties.

The e-tailer hopes to consolidate further in the time that competitors will take to adapt

to the dynamics of the Net business. Says Vaitheeswaran: “There’s nothing like time

gained.”

56


The first full-fledged website in the Indian market to start broadcasting to cater to this

need was Contest2Win (www.contest2win.com), now simply c2w.com, keeping in mind

the impatience levels of users online. C2W edged its way slowly but steadily into the

minds and onto the fingertips of Indian users by striking barter deals which involved

their URL (Internet address) being mentioned in traditional media in exchange for

hosting contests and promotions on their site. With enthusiasm that ran deep, but

pockets that didn't, Alok Kejriwal, CEO, did not spend on the traditional advertising

and PR channels from the time they went live in November 1998. On the other hand,

Hungama.com took the other route, living upto its name when it launched in March 99.

Online advertising, professional PR, and attractive promotions in prominent net-savvy

community hangouts like night clubs and cybercafes in Bombay, Bangalore and Delhi

all went towards literally raising a hungama about this new website in almost no time at

all!

The business model of sites like C2W and Hungama is simple - they believe in the

Internet maxim: "content is king". And they keep that content fresh. Of course, content

for them is not news and features, but contests, promotions and incentives rewarding

users for spending time on their sites. And there are four steps involved in making this

business model pay off for them:

57

Case Study – C2W & Hungama

Case Study –C2W & Hungama


7.1 CREATING CONTENT

Both Hungama and C2W have aggressive teams that interact with various brand and

marketing managers to get more brands on their sites, with hundred of big brands like

Philips, HLL, UDV and Sony already enticed by what the medium has to offer. Contests

and promotions are either created exclusively for the Net, or are online adaptations of

existing traditional world contests.

7.2 ATTRACTING USERS

C2W has emblazoned its brand - their URL - into the minds of current and potential

members by cross promotion in traditional media like outdoor, print, television, and

even on product packaging. Hungama chose to storm the market and create an identity

and brand through physical contact in the real world where their target audience

cannot miss them. Special incentives to cybercafe owners also ensures prominent

display and rewards for getting their members to sign up.

7.3 KEEPING USERS

By constantly adding new contests and promotions to their sites, C2W and Hungama

ensure that their visitors keep coming back. Hungama.com has even gone to the extent

of giving away prizes every hour, by the hour, with over 100 prizes being distributed

daily from their office!

58


7.4 SELLING EYEBALLS

Today, C2W has a database 35,000 strong (growing at 35% per month), all with

authentic registration details - after all fake details means that your prize may never

reach you. Hungama, though a recent entrant, is fast catching up. As these numbers

grow, these eyeballs will attract advertisers to the sites, bringing in advertising revenue,

either for banners or for paid promotions. C2W already has Intel advertising on their

pages, while the Hungama pages are still banner-free.

7.5 THE FUTURE

C2W has already finalised plans for Pan Asian reach, and are looking for strategic

partners for the American and European market, to become the world's contest portal -

a one-stop site for contests and promotions. "Free" seems to be a four lettered f-word

for Neeraj Roy, CEO, Hungama.com who emphatically states that his site is not a

contest freebie site - it is an ePromotions site that will continue helping brands get their

message to online customers through incentives.

Whatever tag you put on them - be it freebies, incentives, contests, promotions, or

brand-building exercises in cyberspace, there are more eyeballs being attracted, and

slowly but steadily, more brands being attracted by these eyeballs.

59


60


ConclusionThe world of consumer products is quickly changing and developing through new

technology and an evolving knowledge of what consumers really prefer – both online

and in the real world.

The explosion of Web content has grown faster in the last year than Web usage. As a

result, it is actually harder to get noticed and have people stay around a site than it was

three years ago. Marketers not only must get people to their site, they must get them

comfortable enough to place an order. As a result, one of the biggest challenges on the

Net is creating brands-strong ones like E Bay, Yahoo, or Amazon that achieve an image

of quality, trust, and familiarity.

Online building brands has presented us with a whole new kind of channel. The

concept of the brand building has taken on a new, more experiential shape—the ability

to surprise and delight in the moment. That is the really important aspect of the

medium that’s not yet as prevalent in more traditional advertising and offline direct

marketing models. But fundamentally, there is no difference between an offline and an

online relationship. Consumers are still people, and they still form relationships with

brands by making emotional connections, regardless of the channel.

One thing is for sure

The Internet is changing the methods of product selling day by day. Instead of having a

supermarkets and malls the days are not far when the basic goods will be sold through

Internet and these will create a true millennium generation and hence at that moment

of time we can show our little one a perfect, “Generation Gap”.

61


Bibliography

Books

1. E- Brands by Philp carpenter2. Global E-commerce and online marketing by Nikhilesh Dholakia3. Internet marketing research by OOk Lee4. Principles of marketing by Philip Kotler

Magazines

1. Business & Economics Page 452. Advance E’dge MBA IMS Publication, August 2005, Pg.213. Global Educator IMS Publication, August 2005, Pg.54. Global Educator IMS Publication, September 2005, Pg85. Business & Economy July 2005, Pg.206. Outlook August 2005, Pg.167. Business Today July 2005, Pg.21

Internet

1. Thomsonlearning.com

2. Bloonet.com

3. www.infotech.com/MR/Industry%20Center/Wholesale%20and

%20Retail/ Governance/Building%20Digital%20Brands.aspx

4. www.mckinseyquarterly.com/ ab_g.aspx?ar=860&L2=16&L3=16

5. www.ceoexpress.com/asp/mckinseyalls4.asp?id=m0173

6. www.themanagementor.com/kuniverse/

kmailers_universe/mktg_kmailers/LetsGoDigital.htm

62

http://www.ceoexpress.com/asp/mckinseyalls4.asp?id=m0173


Places Visited

1. British council library,

2. Mittal chambers, Nariman point.

3. IMC, Churchgate.

Newspaper

1. International Times 2nd, 6th, 7th, 8th, 11th, 15th, 19th August 2005.

While Fabmall as a company was incorporated only in December 2002, it has a history of operations,

which is much older. .

In September 1999, six professionals came together to set up Fabmart (www.fabmart.com) as a

focused online retailing company and since then, it had built for itself a strong online brand and

presence. With a mixture of great merchandise and excellent customer service, fabmart.com had

also built up a loyal customer base, both within and outside India.

In January 2002, keeping in mind the emerging retailing trends worldwide, where many successful

global retailers (Walmart, JC Penney, Nordstrom, Tesco etc.) were vigorously employing a multi-

channel (physical stores, telephone orders, Internet etc.) approach to retail to customers, Fabmart

also decided to expand into a physical chain of grocery stores, apart from electronic retailing. As this

initiative took off, more business opportunities started emerging, each of them opening up fresh

revenue streams.

To ensure that all such initiatives receive adequate focus and resources and to also make sure the

company now reflected the new ethos and business priorities, it was decided to form a new company

and transfer all Fabmart operations to this new entity - called Fabmall (India) Pvt. Ltd.

Today, Fabmall is poised to grow aggressively across several business areas:

63


1.Electronic Retailing - with a mixture of category based stores and a growing assortment of

merchants using the advanced online technology platform to create their own online web-store fronts.

2.Web Services - using the skill sets built up over the last three years to offer corporates a

combination of services like payment gateways and web based BPO (Business Process

Outsourcing) solutions.

3.Physical Grocery Chain- a chain of grocery supermarkets in Bangalore with plans to expand into

multiple cities and with a mixture of different physical retailing formats.

64