Keeping Up with e-Commerce

George Colony, chairman and CEO of analyst firm Forrester Research, compares online customers to "empowered fruit flies, low attention span creatures with big wallets.... They crave and can judge great experience and will flit from bricks to clicks to catalogues to find it."

According to Colony, these "fruit flies" are a misunderstood breed. Bricks-and-mortar companies, he says, imagine their customers still look to them for the same things they always have--value for money, prompt delivery, courteous service, fair pricing. Dot coms, by comparison, only serve the early adopter, technology-savvy customer. "Neither the traditional companies nor the dot coms have grasped the velocity of change in their customer bases. Lessons learned in 1999 won't apply in 2000," he warns.

Colony is spelling out a crippling paradox for marketers in the 21st century. While most marketers see a desperate need for new marketing strategies now that the entire dynamic of the relationship with customers has changed, few companies know where to begin. The technology is available for customer profiling and real-time marketing, but in too many cases its possible uses are either misunderstood or ignored.

In addition, few packaged software vendors can currently offer a truly robust e-marketing package. Early adopters must choose between two extremes--they can either have an industrial strength campaign generation system, based on a massive database, or a real-time online front end, with little long-term behaviour tracking capability and in-depth understanding of the customer (see sidebar).

John McKean, author of Information Masters, Secrets of the Customer Race, has visited a number of banks in preparation for a new work on e-business and customer relationship management (CRM). He feels many are going down the wrong track in setting up their online operations. "I've been tracking and working with many firms in CRM, and they're all now moving into the e space. But there are some fatal assumptions being made as they set up a new business or get an e-component. It floors me when I go to talk to banks, the lack of good customer feedback."

Unchanging fundamentals?

Nonetheless, the marketing theorists insist the fundamentals remain the same. Philip Kotler, author of marketing's unofficial bible Marketing Management, and a founding father of marketing theory, says that like every new medium before it, "e-marketing doesn't negate marketing fundamentals such as segmentation, targeting, positioning, the marketing mix, customer satisfaction and value. However, it does create new challenges for marketers."

He cites the greatest difficulties as measuring advertising effectiveness and creating customer communities, where the difference is in speed of transaction. Giga Group CRM analyst Erin Kinikin agrees: "The biggest difference between traditional and e-marketing is that e-marketing cuts the cycle time from months to hours. That real-time feedback is critical, because if you don't like the response to an ad or a campaign, you can change it while it's active, which was not possible when it took months to get feedback." Most companies, the analysts argue, are simply not geared up for this.

Merlin stone, IBM professor of relationship marketing at Bristol Business School, says the move to real-time is having a domino effect on the entire landscape. "In the past, you learned from the flow of information, but the rate at which companies garner and use information is accelerating.... They set up Web sites and analyse them by the old processes and models, because their strategies are not attuned to speed."

US e-marketing vendor MarketFirst is one of a handful of leaders in this space, according to Giga Group. Product marketing director Mindy Fiorentino says: "There are fundamental differences in e-marketing. With direct mail, it was about volume. You told a story and it was a call to action. With e-mail, there is a fundamental shift--you present an offering and in no time it's read. Or you scan a Web page and e-mail a response. It's a whole new level. You get an immediate response."

Others claim that emerging models of online business are so poorly understood that it's almost impossible to formulate a marketing strategy. Stone points to the emergence of auctioning over the Web, where vendors sell off excess capacity to the highest bidder. Power and logistics are two areas which, he says, can be particularly effective, but which are the least understood. "Clearing houses are transforming the model."

Pace of change

stone believes marketing academics, who have traditionally looked for hard, research-based evidence, are five years behind. Things are moving so fast that you can no longer ask what companies are doing today, but what they will be doing in six months. Some early adopters are showing the way. US advertising agency DoubleClick is the oft-quoted example. Having linked into a network of popular Web sites, the company offers advertisers in-depth information about who is clicking on their ads or viewing their pages.

Companies like Loot.com in the UK use DoubleClick to manage their entire campaigns. Loot, a free online classified advertisement site, is free to concentrate on its own content, leaving DoubleClick to place banner ads and manage their effectiveness. [dCRM Editor's Note: Some privacy advocates in the US felt DoubleClick went too far in collecting consumer information, however. See related article, The DoubleClick Debacle.]

Another example is Nissan North America, which announced recently that it would begin using the real-time personalisation in E.piphany's E.4 campaign management suite to make offers to surfers on its sites, based on past behaviour and analysis of their needs.

Companies new to the e-game need to reassess their marketing strategy at every stage, and restructure around their new business. Consider the four Ps--price, promotion, placement and product. Determining price in the e-world is nothing short of nightmarish, promotion needs to be fundamentally reassessed (see sidebar), placement on the Web is totally different, and even the type of product to be sold is up for grabs. McKean claims that 70 per cent of a product offering is the service, and e-companies need to look at the various interaction points to see how they can set themselves apart.

Most begin with branding. Many UK banks, for example, have rebranded their Internet operations in an effort to disassociate themselves from their old-fashioned image, with limited success. McKean says: "In lots of financial institutions, the brand is perceived as being old, slow, and not customer-focused. If you have negativity around the brand in the bricks-and-mortar world, that is accentuated in the e-world."

This dilemma is even more pointed in retail and CPG (consumer packaged goods) companies where brand is everything. Carol Brannigan, international e-business director at data warehousing vendor Microstrategy, says: "On the one hand, they have fabulous brand names, with trust as their principal characteristic. On the other, it's difficult to put up an Internet site and market services without carrying on the other traits, such as not being innovative. It's a very new challenge for the brand manager, because they need to get trust and integrity as well as freshness."

Another area that needs to change is segmentation of the customer base, where not only are possibilities greater, but the priorities are different. Kinikin says that where bricks-and-mortar credit card companies once limited themselves to ten customer segments, "Now companies like American Express can have hundreds or thousands of segments and measure across them all against time and look at the changes. We're in an area of exploding possibilities."

McKean warns of the dangers of taking the segmentation rules of the old world into the new. A profitable, high-value customer in one world is not necessarily so in the other. For example, bank customers who are not technology-literate may require hours on the phone with customer service talking them through the technology. "They are the least profitable customers, because the bank may not have changed its support standard.... From a cost standpoint it doesn't work."

The way ahead

Some established companies address the changing environment by outsourcing the whole e-marketing operation. Vendors like E.piphany are starting to offer hosted e-mail marketing services, a trend which stone believes is likely to increase. "The offering is not just about software.... You need a full service to allow you to react instantly." He says CPG is the area most stretched on this front, where companies don't have the infrastructure to deal with detailed feedback on areas such as online promotions.

If companies do try to do it themselves, help is at hand. MarketFirst, for example, is building best practice templates into its products to help marketers find their way in the new world. They cover a number of areas, including trading partner management, edirect marketing, lead qualification and distribution, partner and channel management, and seminar management. Such efforts are not definitive answers, simply ways to help companies to jump-start a process they may know little about, but analysts welcome them. "The more templates, customer insight or customer database analysis expertise you can build in, the more likely the company is to actually get a return on investment," says Kinikin.

Ultimately, the effect on the marketing department is unlikely to be a reduction in size, according to stone. He believes instead in the continuation of a classic marketing trend, which will see further costs cut out of the marketing communications process. Marketing will increasingly be called upon to make more rapid decisions, acting on the near real-time information coming back to base. The impact can only be good news.

"Changing the old-style marketing organisation to one that deals with real-time feedback puts marketing in centre stage across all of the customer channels," says Kinikin. "Whereas in the past they were often viewed as an overhead, this type of feedback gives them real power to say here is what's working and not working, and let's change that."

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