Chapter 4-6

The first objective of this chapter is to show you how the individual customer may be tracked, and a profile of their 'buying behaviour' created. Even so, the most important 'device' for making the sale may simply be a sound web-site (process) design. If your visitor can't find what they want they won't buy it! FAQs (Frequently Asked Questions) are one approach, but an understanding of the whole process of interaction with customers, and of their related behaviour (especially in terms of rebuy rather than initial buy) may be productive. In particular, the chapter looks at how services pose different challenges to products.

4.2 TRACKING USERS

Inherent in many of these approaches is the concept that you will track the user. You will profile them and follow them as they work their way through your web offering. This is the best market research for tailoring your site to individual profiles. Until you know their purchase behaviour, which may often be much more important (and much easier to determine) than their social characteristics, you really haven't got a grasp on your customers.

fig.(6) One of Amazon's competitive advantages is that rigorously maintains the links to its customers - not least by tracking its customer's profile in order to present these 'instant' recommendations

4.3 USER IDENTIFICATION

Thus, the owners of websites need to be able to identify visitors when they return - not least so they can personalise their responses, as Amazon for instance does. To do this they need to track some unique identifier. Unfortunately this cannot simply be the user's web address, since this may be shared - and, in any case, is lost if it comes through a proxy server (as it often will be in the case of a popular site).

There are a number of ways customers can be tracked. Daniel Amor[i] lists some of the main approaches:

· Cookie - this is placed on the customers’ computer and is retrieved when the user logs on the next time

· Basic Authentication - where users identify themselves through a login and password.

· Domain Name - they can be sometimes be identified through their domain name.

· Personalized URLs - they can also use personalized URLs, one for each authorized user

· Strong Authentication - finally some form of digital certificate - issued by the vendor of a third party - may used

As you can see, one common solution is to place a 'cookie' on the visitor's hard disc. This is a file which the operating system allows external web-sites to create, and which contains the information about the users the external site owner wants to store - most basically a unique identifier which links them to the site's database. The simplest form is one which links the user to a single site; as Amazon does with the simplest structure - .amazon.com.Userid=12345 (for instance) - which then is used to link to the main Amazon database containing all the details of prior purchases. A more complex, and ethically much more questionable, approach is to place a cookie on behalf of an agency; which is then recognised by other web-sites who use it to tailor their advertisements.

4.4 NAVIGATION DESIGN

Above all, though getting customer to enter your site is only the first step. Once the customer is there you must make it easy for him or her to move around the site and get the information they want. Clearly there must be some promotional content to this, you will want to - as far as possible - control what they doing, in order that you can steer them to making a purchase. On the other hand, you should realise that with the new empowerment of the individual you have to be very careful. They are now well aware of what vendors, especially those on the web, are trying to do to. If they think that you are trying to manipulate them they will run a mile. Worst of all, if you try to keep them in, as some web sites do and won't allow you to get out (since the 'back' function of the navigator is deliberately disabled), then they will flee your site and never come back again. Nobody likes to feel trapped.

More generally, an especially important aspect of web design is that of the processes deployed by the web-site; and in particular those relating to the way customers navigate around it. Above all, the navigation support tools should reflect how customers naturally want to get around the site; so watch them to see what they want to do.

If you need any encouragement, Jim Sterne[ii] reported that "In April 1998, Shelley Taylor & Associates announced the results of a study of the world's largest 100 companies. The results included the fact that only 42 per cent of the sites incorporated global navigation, only 22 per cent used subsection navigation, and only 33 per cent had site maps." Things may have improved since then; but make certain your own site(s) does not fall into this trap.

■ A useful exercise is, from time to time (as its design changes), make a visit to your own web-site(s) and see how easy it is to find your way around. Once again, do this from home rather than on the fast network in the office. Even better, get a friend who does not know what to expect to do the same. You may be surprised, and even shocked, at what they have to say!

4.5 INTERACTION

Perhaps the most important feature is that you, or your website, should interact with the customer - that, after all, is the great benefit that e-commerce is supposed to offer! Thus, at every stage, what should be encouraged is interaction. In particular, as in much of marketing, what customers say to you is more important than what you say to them. You are there to sell products, no doubt, but they may well be there for a much wider experience. Just being faced with a catalogue of your products may do little for them. It may do even less when, as some suppliers do, the list is organised by product number without any obvious structure telling you how these differ.

Some of the earlier 'feedback' may be based upon form-filling, but always provide an email address (preferably linked direct to a 'reply' button) so they can talk to you free of restrictions. More important, make sure that you reply to all such emails within a matter of hours, if not minutes. Nothing loses potential customers faster than the feeling you don't care. For the same reason also give a phone number. This may seem to go against the spirit of the Internet, but it means they can harry you if the email isn't answered; and you really should want to know if your systems are failing! Indeed, give them every address - snail mail as well - up to that of your CEO so they can get through to somebody - no matter how hard your staff try to stop them!

To create extra interest which may bring customers back to the site, however, the conventional advice is to put lots of other pieces of information on the web site. In particular you should make it so interesting, newsworthy even, that people want to come back time and time again - for the interest offered by the site itself. So you should create user clubs (where users can exchange information), provide topical articles (which relate to the use of your product or service say), along with articles (by experts including your own staff), support bulletin boards (where customers can put up messages for other users), or offer entertainment (computer games etc). Don't get too carried away with this, however, for - unless you are charging in some way for them being on your web-site - you shouldn't lose sight of fact that at the end of the day you want them to buy something. Indeed, the more you offer the greater the chance they may get lost. Customers may love that, but you won't make a profit out of it.

■ Based on the visit to your own web-site which you just completed, how would you rate its interest value: good adequate poor irrelevant?

As a footnote to this section, one of the things that is most useful on many websites is that of Frequently Asked Questions (FAQs). This, in many respects, substitutes for the face-to-face contact. In essence, when people e-mail you directly, asking specific questions, you answer the emails with the best help your technical team can provide - though many organisations don't get this far, but you then keep that answer (along with the original question) and you put it on the database. Customers can then - when they have a similar query - see if it has already been answered.

This means, of course, that you have to have a good database - with a viable way of enquiring on it. It is just as bad to have 10,000 FAQs, with no obvious route to the one the customer needs, as to have none at all. It also means that those answers have to be concise and up-to-date - both of which demand significant staffing resources. On the other hand, it offloads many of the routine queries which would otherwise have to be handled face-to-face, and - above all - it really is appreciated by customers, who are used to taking days for their answers to come back through more conventional channels.

4.6 INNER MARKETING

As already suggested, this is even more important in the case of ecommerce operations. The staff there may have even less contact with customers - and may come to focus on the technology rather than on the human impact of their work. When I complained to a senior manager of an IT multinational, one which I normally respect and which has an excellent reputation for service, about the very real problems with its (technical support) helpdesk operation, he made it clear that he thought the problem must lie with me rather than them; after all, they had spent many millions of dollars on the software which had replaced the people! This was despite the fact that, as a personal friend, he knew that I have worked in IT for more than three decades - and can programme in a dozen different languages. What hope is there for mere mortals?

■ Does your organisation conduct any research into the opinions of its own staff?
■ If it did, what unwelcome news do you think it might find?

Internal Opinion Surveys

Internal research may have great benefits. Such 'opinion surveys' are remarkably effective devices for obtaining information on the 'inner market. If applied regularly to all staff, they are also remarkably good motivators and contributors to a positive culture. At the peak of its power, one of IBM's most powerful tools, in developing its justly famed relationship with its staff, was the 'Opinion Survey'. Every two years, every employee in IBM took part in an anonymous survey of how they felt about IBM and what it was doing; as well as how they felt about their immediate management - which was, since the results were published, a remarkably powerful device for ensuring that managers took note of their subordinates opinions! The results were (very publicly) acted upon; to the benefit of the 'inner market' - not least because the employees (unlike those in most other organisations) recognised that IBM was listening to them. Unfortunately, remarkably few other managers use them.

Only with this basic information on employee attitudes (however derived) can the 'inner marketer' start to devise the programmes necessary to create the new attitudes, the conviction in the goals handed down to them, which will deliver the requisite service to the external customers. The actions needed to achieve the end result follow the well trod path of any marketing campaign; although they are alien to much of human resource management. Even in the marketing context, it should be recognised that it may take far longer to achieve the desired results than in a traditional consumer marketing campaign - for the requirement frequently is to make fundamental shifts in attitude.

At the most basic level, the staff will need to understand what is expected of them; by their own management and, in particular, by their customers. It is remarkable how many 'improvements' in customer service are advertised to the customers but never explained to the employees who are to deliver them; let alone agreed with those employees. Beyond this, the essence of any marketing campaign, as with any military one, is that all the actions happen at the right time, and in the manner planned. The inner marketing campaign is essential (whether it is formally or informally implemented) to ensure this happens. How many times have you heard of, or even experienced, offers advertised by retailers which their branch staff deny exist! How many times have you found yourself talking to a 'call-centre' and begun to understand that the reputation of these new institutions - as the sweatshops of the Western world - is fully evidenced by the lack of motivation by all involved?

■ I will not ask you to find out whether your organisation has an effective opinion survey process. If you work in any of the handful of organisations which do this you will be very well aware, from your own positive experiences with it, that this is employed. But what impact do you think this might have on your organisation?

Managed Suggestions

One especially powerful technique lies at the heart of so-called Japanese techniques; and, indeed, at the heart of Toyota's success. This was developed by the American Philip Crosby, but adopted by the Japanese rather than the US corporations, as the eleventh step of his famous 14 step 'zero-defects' programme. In the original, as developed for the Pershing missile programme in the US, it was titled 'Error Cause Removal (ECR)'. This emminently forgettable title may be why it has been forgotten by the West! Toyota, however, retitled it - confusingly for the outside world - as their 'Suggestions Scheme'. Like the Western version, the idea is that any employee puts a suggestion into the nearest suggestion box as soon as he or she recognises a problem which needs solving; and they are then rewarded for this observation (in the case of Toyota, the company receives more than 2 million suggestions each year, and implements more than 90% of them). The crucial difference from the Western equivalent is that the employee is only required to identify the problem, and need not suggest a solution (which is the main thrust of Western schemes, and it is the solution there which justifies the payment). The problem then is passed to the relevant management, and it is their task to find a solution. To distinguish between the two, I call this process "Managed Suggestions".

This is simultaneously the simplest and the most powerful technique in inner marketing. This may sound a trivial process, but it is usually identification of the problem (the correct question to ask) which is the most difficult part of problem solving. The Crosby approach directly addresses this difficulty, and ensures that the problem is captured immediately it is identified. This technique, orginally proposed for use in quality improvement, can be used in a wide range of situations (ranging from JIT to customer complaints). It is, at the same time, one of the simplest techniques (it could be implemented, in theory at least, in any company in a matter of days), and one of the most powerful.

The one inherent limitation is that it can be too successful too soon. It can pose impossible demands on managers who are unprepared to deal with the problems thus unearthed. How many managers could respond effectively to each worker under their control generating dozens of "suggestions" a year. That the benefit only comes after the manager has identified the solution is bad enough, as is the demoralisation of the managers faced with a massive backlog of suggestions, but the demoralisation of the workers whose suggestions are not being dealt with is even worse. Thus, in practice, this simple technique can only be used by an organisations which has already implemented many of the other techniques (typically those problem solving techniques used by the Japanese corporations) - and whose managers are already conditioned to meet its demands. Crosby deliberately waits until later in his overall programme, typically until more than a year after the start, to introduce it. In order to cope with the demands imposed by a managed suggestions scheme, the management must have already been trained in many of the "Japanese" problem solving techniques. On the other hand, an e-commerce extension to an existing business might be expected to face a rather less complex set of activities than its parent - and 'managed suggestions' might be a much easier tool to implement!

One obvious extension to the concept, which the Internet makes feasible, is to use a similar process with your customers! Ask them, too, for their suggestions.

The Inner Marketing Bonus

An important fact to note here is that the process also includes the lowering of customers' expectations, as experience brings home the truth of what they may realistically expect . In many situations, too many, it is the customers' expectations which are steadily adjusted downwards (without any improvement of the staff positions) until their view accords with the lower levels on offer. The dotted line below shows what might be achieved with the application of inner marketing to positively improve the response rate of staff. The end result is that the final level of perception is significantly higher, potentially offering a major competitive advantage.

Culture

In the ultimate extension of 'inner marketing'. Some years ago, Peters and Waterman[iii] stressed that the resulting 'culture' of an organisation (generally speaking the common values that its employees share - whether developed positively by management as suggested here or by default) can be a very important contributor to its success. Even though Tom Peters is no longer the guru he once was, and most of the examples he chose have long since lost their lustre, such 'culture ' can still be important in determining what 'customer service' is provided - even in e-commerce. Thus, the 'culture' of the company is often what conditions 'customer service'. IBM - as one supreme example - maintained a philosophy of 'customer service' throughout the whole company (applying to all employees) as its only marketing objective for more than half a century; with spectacularly successful results (and an equally spectacular disaster when it abandoned it). Both McDonalds and Disney have similarly strong cultures; and they show (not least in their spotlessly clean premises - but also in their bottom-line profits).

The problem of addressing the 'cultural dimension', even though this is an essential element which must be allowed for in any marketing operation, is normally that of time. Changes in the culture of an existing organisation may literally take years to be completed. If existing cultures are strong, and the changes are major, the process may take decades. Both IBM and the Japanese corporations, who probably have the strongest cultures of all, needed as much as fifteen years to fully develop all the detailed aspects of the new, and rich, cultures they were introducing. Culture is not, therefore, a topic to be taken lightly; though more minor changes (particularly those which 'complement' the existing culture - and characterise the earlier conviction and commitment stages) may be accepted more rapidly - but, even then, not in days!

The saving grace for the e-commerce start-ups is that creation of a new culture can, on the other hand, be a matter of months not years. Even the clicks and mortar operators may be able to create a new ethos in their own 'start-ups' relatively rapidly - if they are deliberately separated from the main business (though that, of course, will pose another set of logistical problems!). It is especially important, therefore, that the cultural changes follow a deliberate, well thought out, plan. If they are allowed to happen by default, while the management get on with what they think are more important things, they may get locked into a very unproductive model - which will then take seven years or more to correct!

4.7 SERVICES IN THE POST INDUSTRIAL SOCIETY

Having explained how ecustomers, and their communities, may evolve, along with some of the 'products' they may demand, we can look at the range of knowledge services, in particular, which e-commerce will increasingly revolve around. As Amazon has demonstrated, physical products can be sold over the web, but even in its case the service elements are the ones which give it a competitive advantage. In general, though, it is the service industries which are gradually coming to dominate e-commerce across the land (B2B as much as B2C).

Once more, though, the characteristics of these are very similar to those of services in conventional markets; though the balance may be quite different. So, we will now look at the various characteristics which are often referred to as the 3Ps which, in addition to the 4Ps, give total of 7Ps for services. Though the original 4Ps have, in fact, lost their position at the leading-edge of marketing theory, the 7Ps are still to a degree valid in terms of differentiating service industries. So starting with those parts of the list which relate to the elements of intangibility - literally you can't touch services where you can touch a product - these are indeed rather different for e-commerce:

· People - the first of these Ps is that of people. Thus, for most service industries people are the key. This is partly to deliver the service, and is just as true of a hairdresser at one end of the spectrum and a management consultant at the other. The 'product' in a service most often is the people involved. This may seem to be much less true of Internet-based services of e-commerce in general, and of the new knowledge industries in particular. Indeed the face-to-face contact rarely occurs, but people are there in several different guises. The first of these is that they will provide the original knowledge, either as input to the general database or quite often as specific knowledge in response to specific questions. On the other hand, they are also a necessary evil, as an integral part of the operations needed to debug problems. It is this latter aspect which most e-commerce organisations have yet to learn. They assume that, because they have spent money on the software which delivers the knowledge, they don't have to have any human interface. The reality is, as most of us know from bitter experience, that the incidence of glitches, or bugs in the software, is much higher than the designers ever allow for - and dealing with these requires very talented individuals. The level of service is, accordingly, often determined by the quality of the individual people who are on the helpline - if such a helpline even exists!

· Place - the new place is not the physical place which most traditional services rely on. It is, instead, the web-site. The old adage "it's location location location" must be replaced by "look to the web site". This where the activity is. It's where the key investment has to be made, though the level of that investment will typically be much lower than that for the traditional investments in real estate.

· Promotion - the final P is that of promotion. With services the character of the service is often largely set by what you say about it. It, especially, is set by the branding. This branding is even more important for services than for products. A weak physical brand can occasionally be saved by a strong product performance. But a weak service rarely can. The brand is the service. This is even more true of e-commerce. The whole tone of the offering may be set by the brand. In particular it may be set by the brand extension, since it is much easier to take a non-e-commerce brand and extend this offering onto the Internet. It is much more difficult to start-up a new brand. This was the situation which applied to many of the original e-commerce start-ups. They had to spend tens of millions of pounds in the UK alone, just trying to establish the brand; paradoxically spending this largely on posters, on bus sides, rather than on advertising across the Internet - which you might have thought was more suitable!

· 'Inseparability' - this is one of the other less obvious aspects of services. What this means is that the 'product', the service, is produced at the same time as it is consumed and both happen after the order is placed. This is very different to most conventional products which can be held in stock. It also means that stockholding, in the conventional sense, is not possible. Equally, though, it may mean that stock control is even important. This is because, for example on an airline, the seats it has are totally 'perishable'. When the plane takes off, if the seats aren't full you can't save them for sale later. Fortunately, in the case of e-commerce the only 'physical' resource that matters - at least where you are selling knowledge - is raw computing power. So you can set up, in effect, infinite supplies and hence not lose any business in this way.

· Ownership - in the case of services 'ownership' is very different to that of a product. It is much more ephemeral. Perhaps when you have a haircut you enjoy the result of it for a few weeks, until it grows out. But in a number of other areas, for example travelling by bus, once done it is gone. You have nothing to remind you of it - unlike a physical product where you may have it in perpetuity. In e-commerce, of course, you can store the information that you have downloaded, for example on your hard-disc, so it is still there in electronic form. But, usually, once you have the information you don't need it again. It is a one-off transaction

· Variability - this is one aspect where e-commerce is particularly different to services in general, because in conventional services the people content is very subject to variability. On the other hand, one thing about computers is that they are totally predictable. Given the right rules they will do exactly the right thing every time.

Summarising, therefore, in comparison with the traditional characteristics of services:

· intangibility - the offering becomes even more remote and even more intangible, where you don't even have the people across the table to reassure the customer

· promotion - this is combined with place and essentially the web site becomes the prime vehicle

· people - should not be ignored since they can make major contributions the success of e-commerce

■ Put these in order (1-4) in terms of their priority to the activities of your organisation.

Chapter 5. NEW MARKETING THEORIES FOR OLD?

5.1 OVERVIEW AND OBJECTIVES

We now move on to three chapters which, in some respects, represent the heart of the book. I have already explained that much of the marketing needed for e-commerce is the same, often exactly the same, as is needed for traditional markets. These three chapters, therefore, look at the various elements of the traditional marketing mix, to see how they fit in with the demands of e-commerce - and how they may need to be changed.

The main objective of this present chapter is therefore to look at the basics of the marketing mix, in the context of its extension into ecommerce, before focusing on the strategic decisions on segmentation and in particular on positioning - to cope with the e-commerce forces which compete to diffuse the product/service identity - in order to establish what needs to be achieved by the brand strategy.

Marketing Mix
Marketing Research
Segmentation
Positioning
Position Drift
E-Commerce Diffusion
branding
Customer Franchise
Branding Policies
Rule of 123

fig.(7) Walmart, the US superstore, classically offers online services which complements those of its stores

5.2 THE NEW MARKETING MIX

Indeed, the most fundamental statement to be made about most of e-commerce, at this point in time, is that it is just one more element to be added to the marketing mix.

This may be the opposite of what you expected. You will have already gathered, from the media-hype, that a fair number of people involved in the e-commerce marketplace think that, at least for them, it is the only part of the marketing mix. That is taking too short sighted a view of all the other elements. Even if you are looking only at new start-ups, you still have to add the product features, promotion, service support, and all things that would normally be expected go into the marketing mix. Indeed, as always, the success is dependent upon getting the marketing mix right. In some areas of e-commerce, especially where it is an extension of existing business, this balance may become ever more important. E-commerce certainly makes its (new) contribution and it cannot be ignored. But, at the end of day, everything else is still there to contribute to the final mix.

In particular, if you're looking for a traditional model which can be most easily extended to e-commerce, then it is worth looking at direct marketing. For a long-time direct marketing has been neglected by the academic world. It has often been seen by academics to be the province of cowboys. But the reality is that although it is actually quite difficult to put into theory, and that puts off academics like myself, the features that characterise it are often close to those that now apply to e-commerce. Equally, our own research with practitioners shows that the 'rules of thumb' typically used in direct marketing - because more elegant theories are missing - often actually are more valuable in practice than the erudite theories of the academics! This is because they offer practical help which is immediately of use in building upon existing skills and knowledge to develop specific solutions to unique problems whilst clearly highlighting the limitations of the 'theory' involved. Where e-commerce is so new, and its lessons as yet uncertain, such rules of thumb - derived from what little practice there has been (and what even less success has been achieved!) are correspondingly even more valuable!

The 'rules' may well be different in the future. Certainly the balance between them may change, but they offer a good starting point for much of e-commerce marketing.

■ How does your own organisation see e-commerce activities fitting into its existing marketing mix:

■ Does it see ecommerce as requiring a totally separate marketing strategy?
■ Or does it see it as an extension of the existing mix?

5.2 SELLING VERSUS MARKETING

Moving to another part of marketing theory, one which was the subject of much debate (in the earlier days of marketing) of the difference between selling and marketing, clearly e-commerce must be on the marketing side of this; though, at the beginning of the decade, the naïve promotional campaigns of many of the start-ups scarcely seemed to recognise this! Not least, it is quite difficult to 'push' through the Internet. People will come to buy from you rather expect you to go to them and sell. On the other hand there still is some push technology around, for example that used to serve subscribers to the financial news services, which can be treated rather like direct mail, so the picture even now is not totally clear. But, in general, it is much more like marketing rather than selling, which is good news - the marketing/selling debate (which lasted a decade or more) is one we can well do without!

5.3 MARKETING RESEARCH

This is the traditional starting point for marketing, and there has been a great deal of talk about the Internet, and especially the Web, being an excellent source of desk research. That may be true for certain purposes but, in the short-term, the search engines are still too variable to guarantee success. The data that emerges is too often of questionable quality. Worse still, it is difficult to know whether the resulting data is well founded in research, or the output of expert opinion, or just opinion from ill-informed individuals which may be quite useless. So one of the first things one must do, in using the Internet as a source of market information, is to decide the likely accuracy of the material.

It is difficult to use for survey research, because the population frameworks are simply not there. In the population as a whole you can use electoral rolls and even telephone directories, but equivalents are not available on the Internet. So it is, as yet, quite difficult to select representative samples. Indeed you should, as a matter of course, suspect the various methods of obtaining any sample populations used.

It is also said that it is useful device for focus group research. It is difficult, though, to see how the very sophisticated techniques normally employed in focus group research might work; since these depend upon quite close relationships - including body language - between the six to eight people locked in the same room together. We ourselves certainly have not been able to achieve this, though we have used the Internet extensively for the equivalent of very large-scale conferences, with several hundred people involved at a time. But, though these can be used to obtain some similar information, the dynamics of these are quite different to normal focus groups.

5.4 SEGMENTATION

On the other hand, the Internet and Web should be the ultimate answer to segmentation, to the extent it should be possible to segment down to the individual. That possibility may not be immediately achievable in practice quite simply because - as we saw earlier - it is very difficult to manage millions of individual segments! Indeed, the initial decision, which matters most in segmentation, is choosing a number of segments you can manage- where it is difficult enough managing just four or five segments. Everything else then falls into place, and the computer programs then are able to dimension the factors and cluster the data to produce that many segments. As was suggested earlier, it might eventually be possible to use some form of rule-based segmentation instead, to handle much larger numbers of segments, and this may well be more important in future, but it is not available as yet.

Indeed probably the most important segmentation still is by the benefit the consumers seek. In other words, you should look at the history of what has happened previously and apply some form of segmentation based on usage. For example, Amazon uses previous book purchase behaviour to categorise future promotional suggestions to its individual customers. This is a very effective technique. Besides optimising Amazon's promotional messages, users actually are grateful to Amazon for suggesting such useful books to them.

■ Does your organisation treat e-commerce customers as if they belong
to a special segment ?

5.5 POSITIONING OF EXISTING PRODUCTS AND DRIFT

There can sometimes be confusion between 'segmentation' and 'positioning'; and indeed the two processes often overlap. The key difference is that segmentation applies to the market itself, to the customers who are clustered into the 'natural' segments which occur in that market. The positioning relates to the product or service within the market; and to what the supplier can do with these 'products' to best 'position' them against these segments. At the macro-level this process is, however, much the same for e-commerce as for conventional markets.

A further complication is that 'positioning' can sometimes be divorced from 'segmentation'; in that the supplier can choose dimensions on which to position the brand that are not derived from research - but are of his or her own choosing. By default, this is typically the case for the new - stand-alone e-commerce brands. Indeed, such positioning can be applied (to differentiate a brand, for instance) even when segmentation is not found to be viable - or where the 'segment' is the individual! In practice it typically uses many of the sophisticated techniques applied to segmentation, but in its simplest application it only requires that you decide 'where' you want your product or service to be against the critical dimensions (or variables) which are applied by its market/customers.

Easiest of all to use, at the macro-level are graphical 'maps' which show the position(s) against these dimensions. Conventionally, such product positioning maps (sometimes described as 'product space') are drawn with their axes dividing the map into four quadrants. This is because most of the parameters upon which they are based usually range from 'high' to 'low' or from '+' to '-' (with the 'average', or mean, or zero position in the centre; where these axes cross). This is best shown by a typical example;

In the above case there are just two clusters of consumers, one buying mainly on the basis of price (and accepting the lower quality this policy entails) and one on the basis of quality (prepared to pay extra for this). Against these segments there are just two main brands (A and B), each associated with a cluster or segment. There is also a smaller brand (C), associated with cluster 1; offering an even higher quality alternative (but at an even higher price).

Real-life product positioning maps will, of course, be more complex, involving a number of such dimensions; and drawn with less certainty as to where the boundaries might be. But they do, once more, offer a very immediate picture of where potential may lie, and which products or services are best placed to tap this. They also offer a sound basis for 're-positioning' existing products, or launching a complementary new product as a brand is extended into e-commerce; so that they better match the requirements of the specific 'clusters' on which they are targeted. In the above example, Brand C might be content to remain a 'niche product' product. Alternatively, the positioning map shows that if it were reduced in price slightly (and were backed by sufficient promotion) it might become a very competitive contender for Brand A's market share.

In most markets - even without the advent of e-commerce - customer requirements change over time, perhaps due to social (or fashion) factors or - perhaps more likely - to technological changes, such as the Internet, in the market. These changes may be relatively slow for long-established brands or very rapid for some fashion products; ans fastest of all for developments in e-commerce. It is imperative, therefore, that you develop your existing products in line with these changing requirements. This is just as true for long-established brands as new ones, though - because the changes are slow - there is a danger that these new requirements are overlooked. It is, of course, even more important in the case of e-commerce, where - even after the dramatic changes accompanying an extension into e-commerce have settled down - the pace of such changes can be fast and furious. If you do not develop existing brands in a regular, and rigorous, manner you may find yourself the victim of 'Position Drift'.

If you look, below, at an even simpler example of a positioning map, we may see for example:

You can, once more, use this map to position your brand as close to the ideal as is possible for the segment(s) you wish to address (and hopefully dominate). The problem is that this shows only a static picture. Over time 'position drift' can significantly change the picture. In traditional markets, as well as e-commerce, this may come about for three main reasons;

i) Consumer Drift

As consumer tastes change the segment (cluster) which contains them will shift its position. Its centre of gravity will move - and is size may change as consumers switch to other, perhaps newer, segments. Not least, as the e-commerce elements in the marketing mix grow, the clusters may shift significantly.

The position of your brand relative to the ideal position, within this cluster, will reflect this drift.

ii) Competitor Drift

Alternatively, your competitors may shift their positions - so that your own relative position, your competitive advantage, may become less than optimal. In the case of entry into e-commerce, the effective mix of competitors may also change.

This may pose a particular problem if you are trying to target several segments - including some in e-commerce markets - with just one brand, since any move to respond to a competitive threat in one segment may leave the rest of the segments exposed.

Much the same problem may, as we will see below, occur in e-commerce, where the brand position is diffused and diluted by one-to-one marketing which targets individual customers across the market.

iii) Ego Drift

Perhaps the most prevalent drift of all, however, occurs where 'brand managers' (or their advertising agencies) gratuitously reposition their own brand in a less optimal location. This is usually justified on the basis that consumers are bored with the existing messages, and an exciting new approach is needed, but it is also a common response to an extension into e-commerce. The real reason often is that members of the management team, frequently persuaded by an agency creative team itching to make their own distinctive mark, are themselves bored; or are confused by what they believe are the very different requirements of e-commerce - which, as we have seen, is usually not the case.

iv) E-commerce Diffusion Drift

In the e-commerce sector, drift is inherent, as the one-to-one element - at the heart of effective customer profiling - is pulled, by the differing needs of the individual customers, away from the core positioning set by the overall brand (and its advertising).
The challenge, here, is to balance a clear public identity with the private one implicit in the growing relationship with the individual customer. The winning brands will probably be those which publicly encapsulate general values which can also be focused on the individual needs at the private level.

The biggest problem caused by drift, of any of these types, even that of e-commerce, is that it usually occurs so slowly that it is not noticed by the brand manager - in the timescales that he or she works to, even in e-commerce, the changes are imperceptible. It is for this reason that, as a result of such position drift, brand positioning maps must be updated regularly (and very regularly in the case of e-commerce), and the changes plotted as accurately as possible - so that the trajectory of any drift may be determined, and corrected.

■ The very practical exercise I would suggest her is simply to update the positioning maps you should already have, to take full account of your e-commerce intentions. This may be quite time-consuming, but the insights you may gain should be the most valuable you will gain from the work in this book!

5.6 COMPETITION

The 1990s were the era of unbridled competition - the subject then of almost as much hype as e-commerce has received recently! The politicians and the academics preached this, and much blood was spilt between organisations competing on a price basis. This is one area where it is arguable that the positions should be very different for e-commerce, though it is worth stating that so far it has been just as red in tooth as previously and the price competition has been disastrous for many of the new entrants. But that was probably for the same reason as price competition almost destroyed the PC market previously. Where a new entrant has nothing else to offer, as was the case with too many of the start-ups, undercutting competitors' prices was the only way they knew which might win some soft business. It was less easy for them to see that in so doing they might have been building up substantial losses, as indeed happened.

The point about competition in e-commerce is that, at least if you look at the competition theory of the 1990s, the situation should be much less dire. Thus the evidence from conventional markets is that competition is cut-throat when you have just three to five competitors of similar size fighting for the brand leader advantage. If the predictions are true, there will be many hundreds of competitors fighting for the same position on the Internet and - albeit counter-intuitively - that should ameliorate the position somewhat.

5.7 ECONOMIES OF SCALE

At the same time one of the main justifications for fighting for share in conventional markets was that the extra sales allowed economies of scale to be achieved. The extra volume generated by such competition enabled the winning vendors to have lower costs, often significantly lower costs, which then justified the original price cutting moves. This principle lay at the heart of much of the work of Michael Porter, who was the guru of 'competition' in the 1990s.

Although it is often claimed that it is be able to reduce costs overall, it is not obvious that there really are significant economies of scale with the Internet. The difference in the operating costs between the corner grocer and a multinational are not anywhere near as dramatic as they are using other delivery methods. Similarly, the control of distribution channels and the imposition of legislative barriers, which are competitive devices often used by the large multinationals, do not work to anywhere near the same effect in e-commerce. Finally, the problems of overcapacity, which have often driven price cutting by organisations desperate to recover their overheads, on their ill-judged investments in too much capacity in conventional markets, should be less likely to apply in e-commerce. The investment in capacity, in terms of hardware anyway, is relatively minimal. On the other hand, the ill-judged investments in advertising and promotion of some of the more naïve start-ups trying to build market share may still result in similarly unwelcome outcomes.

Simplifying matters somewhat, but not quite as much as Michael Porter, I would suggest that competitive power - across the whole of marketing, but especially in e-commerce - can be built on four main fronts, which make up the 'power diamond':

Two of the factors, 'Differentiation' and 'Scale Advantage', are those which are also at the heart of Michael Porter's work. The other two, 'Market Position' and 'Brand Investment' (or, from the other side of the relationship, 'Customer Franchise') are not usually considered in competition theory. It is the total area between these (which reflects the overall power of the brand), and how the cutting edges (the corners of the diamond) are deployed in practice, which indicate how much competitive leverage the brand may be able to generate.

In the case of e-commerce, as I have already said, 'Scale Advantage' is much less important, and - in the conventional (Michael Porter) sense - neither is 'Differentiation', where this can often be copied in a matter of days - if not minutes!

This leaves the other two, 'Market Position' and 'Brand Investment', which he does not include in his equivalent theory, as being the key determinants of competitive success in the new environment and we have explored these already. The important point to note here is that the rules for e-commerce may be quite different. Positioning and Branding may be even more important than price - or even the product!

You will appreciate that the figures to be used in drawing such a diamond are relative rather than absolute; it is the comparison with competitors performance which counts. In addition, they are generally the result of personal judgement by the marketing strategist - and are as good as his or her 'guesses'.

■ Even so, the next quick exercise is - based on your own judgement - to draw the version for your e-commerce business. What does this say about the power you have in the market?

5.8 COMPETITIVE HISTORY

Taking a more pragmatic approach, the best indicator of future competitive positions, in most stable markets, has been what happened before. Thus, the previous reactions of competitors to a large extent determined what the new competitive moves were - particularly in terms of reactions to new entrants. This may come as no particular surprise to you! Instability may be created, however, if the organisations in the market differ in their structures, goals and cultures, and hence cannot easily 'read' what are the intentions of their competitors. This 'inscrutability' may have helped Japanese entrants to de-stabilise some markets, to their eventual benefit, in the 1970s and 1980s.

One of the big problems for e-commerce, however, is that this advice, to forget about the wonderful theories produced by academics and just look at the competitive history, is not so easy to apply. Regrettably in e-commerce, at least for the foreseeable future, there is no such history to rely on. This may be one the reasons why competitive strategy has been so ill judged by some of the initial start-ups. What, then, might be the alternatives?

■ Looking at your competitors, probably in the context of their longer history in conventional markets rather than their recent entry into e-commerce, what lessons can you learn about the likely future situation in terms of their competitive positions?

5.9 CATEGORIES OF COMPETITORS

The range of competitors - for the case of e-commerce - is interesting in terms of comparison with traditional markets; at least on the basis of Michael Porter's famous theories. His category of 'potential entrants', to a market, clearly is much bigger in the case of e-commerce since, for the time being at least, almost everyone is a new entrant. Interestingly, though, 'suppliers and buyers', who - though listed by Porter - are normally not considered as competitors, may be even more significant in the context of e-commerce. The idea that the suppliers can bypass retailers and wholesalers and go to go direct to consumers is a very potent one. This is now called disintermediation, and in essence may mean that those suppliers no longer need the middle part of the existing distribution chain. On the other hand, the opposite effect can happen, as it has for example with Amazon, where the wholesaler or retailer is actually able to handle a much wider range of offerings and build a position on the diverse nature of its offerings. As usual it is horses for courses. This means that the rules in particular markets, which everyone currently works by, may be turned upside down by the move to e-commerce.

Leaders and Followers

Until recently Michael Porter's work has undoubtedly been the most influential in this area, but there are other commentators with contributions to make. Thus, some emphasise a different competitive split: that between those (`leaders') products or services which have a substantial market share (typically 40% or more), with a very strong position, and those (`followers') which have minor shares, with marginal positions. The approach each of these organisations adopts may be very different;

· Leaders - in this case, the `competitive thrust' may not necessarily be the only, or even the main, objective; since they stand to gain significantly from market expansion, and their promotional effort will often include elements directed as much to this end as against their competitors. In terms of competitive activity, it is normally expected that companies with major `brand leaders' will concentrate their effort on advertising. This has, it seems, been the strategy of some of the major e-commerce start-ups - though often described as 'obtaining the first-mover advantage', where these (as first into the specific market - or at least the first big investor in it) are willing to invest very heavily to be the leader. As we saw earlier, in the Rule of 123, being one of the first three brands in a stable market does confer significant advantages. In e-commerce, however, the advantages are much less - not least because of the lack of significant scale advantages.

· Followers - on the other hand, in these cases, the whole strategy is likely to be fiercely competitive: aiming only to grab the largest share possible of the existing `cake'. In traditional markets, their main competitive device is likely to be, `below the line', promotion; and, in particular, price competition. In e-commerce, there may be many more followers and this may be the normal mode of operation for most of the market. In this case, the key may well be diversity - or at least seeming diversity. The many e-commerce followers will attempt to segment the market to provide a niche which only they can address.

· Know Your Competitors - by far the most important aspect, of effective competitive strategy, though is that you get to know your competitors personally!

Competitors' Response

Thus, one of the aptitudes which marks out great generals, as much as chess masters, is the ability to get under the skin of their opponents; to understand them in such a way that they can predict what their responses to different situations might be. So probably the most important, but often neglected, aspect of any competitor research is to determine how each of the competitors may respond to future changes. In traditional markets, there are four main categories of possible response;

· Non-Response (or slow response) - this competitor will not respond directly to any changes in the environment, or at least will not do so in the short-term. It may be a dominant brand leader, or it may be a competitor in a particularly weak position which cannot resource any reaction. Due to the relative lack of competitive advantages, this is the response which may predominate in e-commerce markets. The participants should thank their luck stars for this - since it lets many more players remain in the game!

· Focused-Response - some competitors will only respond to certain types of challenge (typically on price). This is likely to be the other main response in e-commerce markets - where, due to the sheer numbers involved, most participants will focus on the bits of the market close to them - and on a limited number of competitors which they see as intruders, to their own territory. Their behaviour may be much more like that of the territoriality of some animals!

· Fast-Response - but there are also a few organisations, which have a policy of immediate and substantial response (often a deliberate 'overkill ') - as much as a deterrent to future challengers as to the current threat. If this strategy is possible (where it is really only available to leaders in the largest sectors), and can be resourced, it usually is the most effective; and the most cost effective - since the sooner the threat is removed the sooner high profits can be generated again. It is recommended that this is your own strategy - just as long as it is practical, and you can afford it, which may only be the case for a few brands in e-commerce.

· Unpredictable Response - the most difficult to deal with and the most dangerous (to themselves as much as to others), however, are those organisations whose responses cannot be predicted at all! Due to the ignorance of the managers in many of the new start-ups, this has often been the outcome, by default, across many of the new e-commerce markets. Even so, you should never adopt this strategy, unless all else has failed.

■ Is this an effective strategy?
■ Which of these responses do your competitors follow?

One good thing about e-commerce is that existence of the Internet means that you can track every competitive move from the comfort of your desk. You can use software agents to track these, but why bother when all you need to do is to have a list of their web-sites in your browser. Every morning you can check what they are up to!

■ If so, is your main preoccupation expanding the market (and competing with everyone else takes second priority)?

■ In which case how will you fight? By price-cutting, by below-the-line marketing or by niche marketing?

5.10 BRANDING

As suggested earlier, branding is probably the most important marketing device for services in general and in particular for e-commerce - where so much is intangible.

The need is for something unique to hang the product offering around, and that something is usually the brand. Indeed, the epitome of differentiation in e-commerce is that of `branding'. The product or service (including now those of non-profit organisations) is given a `character', an `image', almost like a personality. This is based first of all on a name (the brand), but then almost as much on the other factors affecting image which have built up over time; and which have been influenced by elements such as the packaging, advertising and, in particular in the context of e-commerce, web-site design. The aim is to make the brand so unique that it effectively has its own separate market. This is most often seen as the overt branding of a product or, especially in the case of e-commerce, a service which is sold direct to customers. Recently, however, we have seen the development of what may be described as derived branding, where a supplier of an ingredient used by a number of suppliers to the end-user brands the ingredient itself; thus attempting to set up an brand monopoly for that ingredient. In traditional markets, this may be seen in terms of the artificial sweetener 'Aspartane' in its use in soft drinks. Most obviously, though, it is seen in Intel's campaign, 'Intel Inside', to ensure that its microprocessor is used in PCs. It is especially to be seen , in the case of e-commerce, in the practice of affiliate marketing - where the branding task may often be shared. In e-commerce, Microsoft, for example, co-brands (and in effect co-promotes) parts of its web-site with the PC vendors who sell Windows pre-installed.

In economic terms the 'brand' can, in effect, be a device for creating a 'monopoly'; or at least a form of 'imperfect competition' - so that the brand owner can obtain some of the benefits related to decreased price competition. Most 'branding', in this context, is established by promotional means - even if it is only by the web-site itself. But the monopoly position may also be extended, or even created, by patents and intellectual property. In all these contexts, 'own label' brands (the brands of a retailer, for example) can be just as powerful; and indeed some of these are already perceived by consumers as the 'brand leaders' in their markets.

In the case of e-commerce, the brand becomes even more important - often all-important - since it is often the only thing that differentiates one offering from another. Without a brand - and, as is often the case, without a clearly differentiated product or service - there is nothing on which to build a position in the marketplace!

Customer Franchise

The mirror image of the brand value is often referred to as the ' customer franchise '. At one extreme it may come from the individual relationship developed face to face by the sales professional in industrial markets, and something approaching this may be achieved by one-to-one marketing in some e-commerce markets. At the other, including some of those from other mass-marketed parts of e-commerce, it is the cumulative image, held by the consumer, resulting from long exposure to all aspects of the product or service and especially to a number of advertising and promotional campaigns. In some markets the customer franchise may be so strong as to be exclusive; in effect giving the supplier a monopoly with those customers.

It needs to be recognised, however, that the traditional view of loyal customers never buying any other brand has be shown to be largely untrue. Thus, almost all consumers regularly switch brands - for variety. But they may still retain an image of their favourite brand; which will swing the balance when their next purchase decision is taken. It may thus still have a value (upon which the advertiser can build) even if the current purchasing decision goes against it. A later decision may, once again, swing in its favour. The customer franchise is, therefore, a very tangible asset, in terms of its potential effect on sales; even if it is intangible in every other respect. One great advantage of (one-to-one) e-commerce, through clubs say, is that it is very easy, and very cost effective, to maintain 'members loyalty' even through the times when they temporarily defect to other brands!

It is based, though, on an accumulation of impacts over time. Unfortunately, too many marketers - particularly those in creative departments within advertising agencies - signally fail recognise the importance, and long-term nature, of this investment. They treat each new campaign as if it could, and should, be taken in isolation - no matter how it meshes with previous messages which have been delivered to the consumer. The evidence is that the consumer, on the other hand, does not view the advertising and promotion in such lofty isolation; instead he or she incorporates it into their existing image - to good or bad effect, depending upon how well the new campaign complements the old. This may be as much of a problem for website developers, unless they take full advantage of the inherent flexibility - to allow the individual to, in effect, create their own brand!

All of this may sound very familiar, and you may be asking what happened to the brand which is said to be the major investment. You will be reassured to learn that there is no contradiction in this. The Consumer Franchise is, to all practical intents, the external alter ego of the brand. The brand is how the producer typically sees the (internal) investment. The Customer Franchise is the outcome of that internal investment; the counterbalancing entry with the customers.

Branding Policies

For the record, there are a number of possible policies - applying as equally to e-commerce markets as to conventional ones, for creating such brands;

· Company Name - often, especially in the industrial sector, it is just the company's name - or that, perhaps, of the web-site (where this is different, such as is the case for the 'Egg' bank) - which is promoted.

· Family Branding - but a very strong brand name (or company name) can be made the vehicle for a range of products. This process seems to have been taken furthest, by P&G, by connecting separate families through shared branded ingredients such as 'Excel'. On the other hand, Unilever has deliberately launched a new brand, 'Enjoy', globally in order to cover as wide a range as possible - and will, in effect, transfer some of its existing minor brands to this stable. It is possible that portals, or even clusters of sites within these, will adopt this approach; and even Amazon now uses its name to cover a wide range of offerings, which even include 'auctions' in competition with eBay!

· Individual Branding - is where each brand has a separate name, which may even compete against other brands from the same company. Of course, especially in the case of the new start-ups, you may well have a stand-alone brand. Lastminute.com has established itself with a very clear identity, as a service which offers bargains on airline tickets.

■ Does this apply to your organisation?
■ What approach would be most suitable for your organisation's e-commerce brands, and how might it be implemented?

· Brand Extension - the existing strong brand name can be used as a vehicle for new or modified products. Even in traditional markets, this now appears to be the most prevalent form of development, which is understandable since it maximises the use of the considerable investment in the brand name. In e-commerce markets, though, most brands probably will be extended from existing brands which companies are already selling. Barnes & Noble, as compared with Amazon, has existing bookshops and this means that their brand is already established.

In effect, the extension of the brand into e-commerce is quite simply to add in another delivery system. This is a much less onerous 'new product launch' than is normally considered to be the case, even for a brand extension in a conventional market. In any case, even there, brand extensions, which have tended to dominate new brand activity in such traditional markets over the past couple of decades, are almost always into a nearby sector. For example, Procter & Gamble's Fairy Liquid dish washing liquid brand has been extended into a number of other related fields. Coca-Cola has, over time, launched a number of variants, albeit only different tastes - sometimes by accident! It is even more likely that extensions into e-commerce will also target nearby sectors - most likely they will be positioned in exactly the same sector as the parent organisation already trades in! The risks involved will therefore be much lower than those for the start-ups, so many of which failed at the beginning of the decade.

Indeed, in the case of e-commerce, the extension is quite simply to a different place. Indeed taking the parallel example of Coca-Cola in conventional markets, the biggest difference it faces is often simply between it sold through a supermarket or over the counter in a restaurant or bar - though not, as it happens, over the Internet!. Accordingly the extension of a brand into e-commerce, for a strong existing brand, is a relatively simple matter - and it is for this reason those extensions of existing brands are likely to prove the most successful at least in the short-term. Indeed the Rule of 123 says that the investment in the brand leader, and certainly across the three brands at the top of the market, will keep almost everyone else out. Taken from other direction, this also says the first entrants into a market have the first mover advantage, but that is only true for an e-commerce market where there are no equivalents of the established brands in conventional markets.

· Multibrands - alternatively, in a market that is fragmented amongst a number of brands a supplier can choose to deliberately launch totally new brands in apparent competition with its own existing strong brand(s). This may happen in e-commerce, where an offering (or as a set of offerings) is branded separately (and probably under different site addresses) to different audiences. Some the most interesting developments in e-commerce may follow this pattern, with them competing - probably on different promotional platforms - with their parent's other brands in conventional markets (as well as their extensions into e-commerce). So far this has most clearly been seen in the financial sector; with, for example, the online 'Egg' brand following a very different strategy to its parent, the Prudential bank.

Whatever the distribution method, e-commerce or otherwise, branding has traditionally been seen as the almost exclusive territory of consumer goods companies, but it has much wider application than that. All organisations, whether they sell to consumers or industrial users, whether they offer products or services, whether they are profit-making or non-profit, have at least one brand; which is usually the name of the organisation. This may come as a surprise, or even as a shock, to those organisations whose focus in life is the product or service they produce, and who think brands are only for goods which appear on supermarket shelves. Nothing could be further from the truth.

The brand encapsulates the product/service package. This package is usually so complex, and almost always contains a range of intangibles in addition to the physical elements - indeed in e-commerce it may be almost totally made up of such intangible elements. As a result, it has to have some form of symbolic representation, a tangible peg on which to hang all these other elements. Sometimes that actually may be a symbol - the 'logo', on the design of which some organisations (including government departments) spend a small fortune and which is meant to enshrine the character of the brand. In the case of many of the new start-ups in e-commerce markets it is also the web-address (such as Lastminute.com). More generally, and often just as effectively, it is simply the name of the product or service, or - most often of all - that of the organisation.

Many would argue that the (brand) name in itself is critical. Certainly, when you are launching a brand name it helps considerably if the name describes the 'product' in some way or other. International Business Machines very clearly described what the company was about, as did Alka Seltzer. But most suitable names have long since been claimed and these days you are likely to be limited to neutral names which are at best inoffensive (often now deliberately selected to be usable around the world - Kodak, Exxon etc) - an important point (the owners of the very successful 'Sweat' soft drink brand in Japan may have difficulty in bringing it to the West!). This, no doubt, was the justification for some of the dot.com brands. It clearly was true of Lastminute.com, which does nicely serve to describe its offering, of last minute travel bargains, and also to indicate that it is a website based company . It even manages to give its address. All of this in 'one word'! It is less obvious how 'Boo.com' indicated what its business might be - a problem which afflicted many other similar start-ups who were so busy trying to get a memorable address across that they didn't worry too much about what it said about the company!

On the other hand, it is what you manage to associate - over time - with that brand name which represents the real strength of the brand. IBM, as it is now called, is meaningless as an English word yet it resonates with very powerful associations; and this is just as true of McDonalds - and I don't even have to say what the product here is - the brand is so powerful that there can only be one possibility! Coca Cola, perhaps the most powerful brand of all, would have quite negative connotations if its buyers took the name seriously and associated it with the drug which was essential to its original medical properties, but which it has long since been dropped from its formulation!

The most powerful brands encapsulate a bewildering array of elements, even those in e-commerce markets, so it is best to think of them in almost human terms - as if they had the complex physical characteristics, overlaid with a rich personality, which any of your friends embody. It may often be just as true of the way that the consumers think about the brand; their favourites are their friends, they're the ones they feel comfortable with, the ones they can take home knowing they will fit in with their lifestyle. If you can think how they could be changed to become better friends to the consumers - much as you would change to fit in with your circle of friends, wearing suitable clothes, talking about the things which interest them, doing the same things together - then you are on your way to developing a successful brand. This is just as true of the weightiest of brands, such as those in capital goods (like IBM) or medicine. The personality they need to establish may be a professional one (like a doctor or engineer, say) but the rules still apply.

Perhaps the most important fact, and one which is sadly neglected in most organisations, is that the brand is the most important and valuable investment that, with very few exceptions, any organisation owns; even in e-commerce where - in the absence of physical assets - it should often be seen as even more important. It contains all the value which has been added to the organisation by its investments in service to the customer over the years; image, reputation, loyalty, trust etc. These are assets which are normally worth far more than the stocks and equipment which feature on most balance sheets. On the few occasions when a brand valuation actually has been added to the balance sheet it has dwarfed everything else, as it classically did during the Nestlé take-over of Rowntree.

The Rule of 123

The power of the brand is especially seen in the case of the brand leaders; those in the top three slots - and especially the brand leader itself. In FMCG markets, for instance, the brand leader often holds 40% of the overall market or more. This level is usually highly profitable; since in addition to the high value of sales generated, its strong position in the market normally allows the setting of a higher price (and hence significantly higher profit) - and economies of scale are possible (not least in terms of promotional and distribution costs). The three leading brands, which typically dominate such markets, between them will usually hold around 70% of total sales share.

The profitability that a brand leader commands usually offers, therefore, ample justification - especially over the longer term ( where such brands can easily maintain leadership for decades) - for the high levels of investment which are needed to achieve this position. The Japanese corporations, who were willing to make such long term investments in markets during the 1970s and 1980s, have since been especially well rewarded for their efforts.

The rule is that, in a stable market, the ratio of share should typically be that the brand leader should hold twice the share of the second and three times that of the third.

The exact ratios vary from market to market, and even the average may vary somewhat - depending upon what parcel of products is examined. The Boston Consulting Group[iv], for example, also suggest that the brand leader should hold twice the share of the second brand, but they differ in detail when they suggest that it should hold four times that of the third brand (giving a rule of 1:2:4!). But, at least in traditional consumer markets, the general principle of the Rule of 1:2:3 seems to hold. With such diversity appearing in e-commerce markets, it is not yet clear whether anything like this will appear there but, until the position is clear, the safest bet is that the Rule of 123 should also apply to the larger markets here.

■ Does it gain any benefit from the Rule of 123?
■ How does this affect your marketing strategy?

Chapter 6. PRODUCT/SERVICE DECISIONS

6.1 OVERVIEW AND OBJECTIVES

This topic has been the subject of many chapters in not a few traditional marketing textbooks, my own included. But where we are assuming that , in the case of your own organisation, this 'product' already exists in at least one conventional market and is incrementally entering into the e-commerce sector I will not repeat a great deal of that material here. To provide some historical context, though, it should be remembered that, in the cost-cutting 1990s, one popular approach - based on aggressive competition, and very effectively promoted by Michael Porter - was that of the 'value chain'.

In the context of e-commerce, the objective of this chapter is therefore to understand the new value chains, along with their economies of scale and the resulting competitive forces, which are emerging. In contrast, it directly examines the failure of the Product Life Cycle (PLC) to help in the new environment and in managing change, and its resulting replacement by devises such as the Competitive Saw and, more basically, by the 80:20 Rule. The chapter also explores how new product development may be managed in this new environment.

Value Chains
Sensitivity Analyses
Product Life Cycle (PLC)
Competitive Saw
80:20 (Pareto) Rule
ABC Analysis
New Products
Creative Imitation

6.2 VALUE CHAINS

In theory, each of these elements is to be investigated separately, to optimise the value it adds to the product/service; though he also suggests you look at the links between them.

Although he carefully stresses that the investigation should look at added value in terms of 'differentiation' (his word for those activities which improve the customer's perceived value of the product or service, by making it seem different to its competitors) as much as in terms of reduced costs, it is the latter aspect (of 'cost reduction') which tends to dominate his work - and certainly dominates that of many of his followers. In theory, at least, this concept should be just as applicable to e-commerce. The reality was, however, that even for traditional markets most of these elements were much harder to cost than Porter allowed for. Not least, in many of them 'allocation of overheads' was the main determinant of the booked cost - and was clearly a matter of (suspect) judgement rather than of record! In the even more intangible fields covered by e-commerce it may be near impossible to get hard costs for most elements. The result is that managers tend to focus on those few areas where they can cut costs - regardless of whether this will be productive or not!

SENSITIVITY ANALYSIS

Thus, one especially enlightening approach is take the cost(s) in each of the areas (or part of an area) separately, and see what happens (in percentage terms) to the overall margin when each of these individual costs is reduced by 10%. Reductions in some areas will have little impact on the overall margin (and hence can be safely treated as of lower priority, in a cost reduction exercise). Some areas, though, will produce significant changes in the overall margin; and these are those to which the margin is said to be most 'sensitive', and are those on which attention should be focused. In this way, determining the elements which have the greatest (%) impact on the overall organisation - is a powerful device for focusing attention on key cost issues. This approach is just as powerful for e-commerce and, indeed, may be just about the only one open to planners in this sector.

One other benefit of the value chain approach is that it highlights aspects of the chain which are critical to the organisation's work. For example, this form of analysis often shows - in traditional markets - that distribution (in its most general sense) is much more important than managers think. In e-commerce such 'supporting' factors may become the heart of the new business.

6.3 PRACTICAL VALUE CHAINS

A more practical approach, however, is to split the activities of the organisation into those characteristic groupings which are natural to its specific operations - rather than the theoretical nine categories described by Michael Porter. In addition, his upper set of cross-organisation activities should be ignored, since - in our experience - they create the most problems allocating overheads and only tend to confuse managers trying to use the approach.

If we look at the result, for a typical e-commerce operation, it seems very different to Michael Porter's example. But this may also be due to the different pattern of business, with purchasing often coming after the sale!

■ As you might expect, the exercise here is to draw a comparable diagram for your own e-commerce operations. What does this indicate about the relative priorities you should assign to each?

6.4 Product Life Cycle?

One other famous piece of marketing theory revolves around the Product Life Cycle (PLC). The 'life-cycle' has long been a very important element of (academic) marketing theory.

You should be aware, though, that its supposed universal applicability is largely a myth[vi]. On the other hand, it is an important one in theory, which you will need to appreciate before you can dismiss it! Its 'intuitive appeal' is based on the analogy of natural (human) lives. It, thus, suggests that any product or service moves through identifiable stages, each of which is related to the passage of time (as the product or service grows older) and each of which has different characteristics:

Lessons of the Life Cycle

It is true that every product or service must, almost by definition, have a life cycle. It is launched, it grows, then it dies. As such, it offers a useful 'model' to keep at the back of your mind. Indeed, if you are in the introductory or growth phases as many e-commerce operations are, or in that of decline (which some of the original start-ups have already moved to!), it perhaps should be at the front of your mind; for the predominant features of these phases may be those revolving around such life and death. Between these two extremes, it is salutary to have that vision of mortality on front of you.

The most important aspect of product life-cycles is, however, that to all practical intents and purposes they often do not exist - even in traditional markets! In most of these markets the majority of the major (dominant) brands have held their position for at least two decades. The dominant product life-cycle, that of the brand leaders which almost monopolise many markets, is therefore one of continuity! Much the same may also apply to existing brands being extended into e-commerce markets - it is their overall life cycle, across all markets, which matters. At the other end of the scale, the dynamics of 'pure' e-commerce markets merely add to the problems for PLC enthusiasts. The movements are so fast that there is not time for a 'natural' life cycle to get established, before the product dies an unnatural death!

In the most respected criticism of the product life cycle, Dhalla & Yuspeh[vii] state;

"...clearly, the PLC is a dependent variable which is determined by market actions; it is not an independent variable to which companies should adapt their marketing programs. Marketing management itself can alter the shape and duration of a brand's life cycle."

Thus, the life cycle may sometimes be useful as a description of conventional markets, but not as a predictor; and usually should be firmly under the control of the marketer! The important point is that in many, if not most, traditional markets the product or brand life cycle is significantly longer than the planning cycle of the organisations involved. In e-commerce, on the other hand, it is too short for planners to use. It, thus, offers little of practical value for most marketers in either case! Even if the PLC exists for them, their plans will be based just upon that piece of the curve where they currently reside (most probably in the 'mature' stage for conventional markets - including extensions into e-commerce - and the introductory phase for 'pure' e-commerce). In the former, the planners' view of that part of it will almost certainly be 'linear', and will not encompass the whole range from growth to decline. In the latter case, it will be even narrower - and unpredictable. Its sensitivity to the exact 'starting point' means that it most closely follows the mathematics of chaos theory!

Whatever the underlying reason for its failure, the use of the PLC may not be just a waste of time but can be positively dangerous for many organisations. At one extreme it tempts managers of successful, mature brands to prematurely anticipate their move into decline. At the other, the exciting newness of the activities on the Internet may seduce them into ignoring the needs of the main (conventional) brand. But it is probably the most widely known, and taught and respected, piece of marketing theory! It is imperative, therefore, that - before using it or even dismissing it - you appreciate the problems that its use, in any form, might pose.

How Might You Manage Change?

Even so, it would be useful to have some theory which explains the likley outcomes over time. Thus, in the longer term, seeing in advance the fractures in the environment - which might threaten survival - or even recognising their implications after they have occurred, is very difficult. This is best handled by environmental analysis, 'scanning', which is part of long range planning. It requires you to take the input from a wide range of sources - typically the media - to see what otherwise might be unexpected changes in society are likely to impact your business. The end point of such a process is often scenario forecasting, which is becoming increasingly important[viii]. Responding to them once they have been detected is perhaps best ensured by undertaking the most effective possible marketing - better than that of other organisations which might also attempt to take advantage of the fracture - and, most important of all, reacting much faster than these competitors.

The less dramatic changes which regularly occur in the stable market - and even in a rapidly growing one such as those of e-commerce - are the staple diet of most marketers. These are dealt with especially poorly by the PLC. The technique which has accordingly been developed, as a positive alternative to ineffective use of the PLC in this ('Mature') range, is called the 'Competitive Saw';

1. The first is quite simply that every 'stimulus' (every investment, be it an advertising or promotional campaign or a new feature added to a website) results, after a short delay, in an rapid improvement in 'output', raising the product or service's position (typically directly in terms of its competitive position, and indirectly in terms of sales levels).

2. The second is that this advantage is then steadily diluted as competitors invest in their own activities, upgrading their own web-pages for instance, and the performance level (the competitive advantage or actual sales) slowly drops until the next stimulus is applied. Because of the competitive aspect and because it largely removes variations due to seasonality etc, the measurements are usually in terms of relative share (though absolute figures may also be used).

This is a very simplified model of what actually happens, though something approaching it can be observed in practice (in the way that, for instance, advertising agencies routinely track the impact of advertising campaigns on awareness levels or website owners similarly track their hit levels), which is not the case with the Product Life Cycle which it replaces. Despite its simplicity, it offers a number of significant benefits:

· Intimations of Mortality - it very effectively replaces the one important function of the Product Life Cycle, that of reminding managers that there will be no future if they do not look after their brands or ignore them to concentrate on the new delights of e-commerce, and continue to invest in them - but it does this more directly and practically, and without the major drawbacks inherent in the PLC model.

· Timescaling - on much the same theme, it is an ever-present reminder that you cannot neglect your brands, or stop investing in them, for too long - especially during the very extended 'maturity' phase of a successful brand

· Linkage of Inputs and Outputs - it encourages, and provides a framework for, managers to actively plan what inputs are needed, when, and what the outputs will be; and what the efficiency of conversion of inputs to outputs is. This is especially important, during the start-up period of an e-commerce operation, when little else may be known

· Surfacing of Investment - it makes very clear the need for, and the results of, investment policies on brands - in e-commerce or otherwise.

Thus, the three main lessons of the competitive saw are the importance of relative performance, the time related nature of this, and the investments which lie underneath.

Adopting the long-term perspective implied by the last of these observations reveals another important implication. Thus, following the implied principle of a fixed asset, onto this shorter-term sawtooth maintenance pattern can be overlaid a gradually declining trend in performance; notionally equivalent to depreciation in financial accounting. Thus, over time there may be a slow drift away from the ideal position - as the customers' needs and wants change and/or competitive positioning improves.

1. Perhaps the most effective, is that of 'dynamic repositioning'. The need for change is regularly tracked and the brand's position readjusted - in much the same way that an autopilot's feedback mechanisms ensure that an airliner follows the correct flightpath. The emphasis here is on the dynamic approach to (current) change - where most of marketing theory revolves around decisions based upon static (historic) positions. Clearly, in an environment as dynamic as that of e-commerce this is essential.

2. If such dynamic repositioning is not possible, perhaps because the necessary product changes come in discrete steps, then periodic readjustments may be needed. This is where the concept of depreciation is especially valuable. Thus, it allows the build-up of reserves to cover the significant costs of such repositioning exercises. This is one investment many e-commerce start-ups have, to their cost, ignored!

Accordingly, the investment in a successful brand needs to be maintained both in the short term, by regular marketing programmes funded from annual budgets, and in the longer term, by less frequent major investments (in repositioning and relaunching) which require reserves provided by a depreciation fund.

Encouraged by PLC theory, which seems to emphasises the futility of long term investment, the long-term asset investment aspect of brand performance is often ignored by traditional marketing theory. This is compounded, in the e-commerce sector, by the sheer excitement of living from day to day, when any long-term effects - even those just months away - seem too remote to consider. We believe that, on the contrary, investment in the longer-term future should represent the main element of marketing strategy - and (in view of the dangers it poses for the unwary) the short-term messages given by the PLC should be dropped from the marketers armoury!

6.5 THE 80:20 RULE AND ABC ANALYSIS

On the other hand, the most general and most powerful rule of all - just as much in terms of e-commerce - is that of 80:20. It very simply - but powerfully - states that, across a wide range of situations, 20% of the contributors (products or services, say) will account for 80% of the performance (sales volumes, say). The 80:20 Rule itself has been in use for more than a century. First enunciated by an Italian, Pareto (hence its alternative title, the Pareto Rule), it is just as relevant today. It is still one of the most productive tools, and one of the few general ones which can be applied to almost any marketing situation.

It simply recognises that the distribution of potential, be it in terms of products or customers, will almost inevitably be skewed. Some of these will be more important than others (and some much more important). That the typical skew is so large that 80% of sales, say, comes from 20% of customers (and conversely that 80% of customers contribute no more than 20% of turnover) may come as a surprise; but has been born out by countless practical examples. On the other hand, as it is only a general principle and not an exact equation, the outcome may be 70:30 or 90:10 (but, by definition, it will almost never be 50:50).

Its power comes from the fact that it enables you to concentrate your resources on just 20% of activities; confident that these are the important ones, responsible for 80% of your 'business'. You can then safely limit any investment in the other 80%. This is especially productive when deciding the priorities for your website, or the systems associated with it. The first decision must be which 20% will have the greatest impact!

One especially useful way to take advantage of this is, when you (or more likely your computer) are listing the results of any analysis, to just print the output in descending order of importance - by descending order of sales volumes, for instance. In this way, the key items are always at the top and receive your immediate attention. On the other hand, the minor ones are at the bottom where it does not matter if they are ignored. This may sound trivial, but by itself it may revolutionise your view of the world. No longer will those customers, and products, whose name starts with the letter 'A' dominate your life!

■ Take some of the reports you regularly use, such as those on product/service revenues or customer income, and reorganise (ie. sort) them as in ABC analysis? How does this affect your perception of what they say?

6.6 NEW PRODUCTS

Moving on to another part of the traditional marketing mix, as yet the best guess is that the most important - or at least the most radical - new products will eventually appear in the Customer-To-Customer (C2C) arena. As with most new to the world products, and certainly with the most radical new products, it may not yet be obvious what they are. More important, perhaps, it is not even possible to research them with consumers, because they have even less of an idea about them than the suppliers.

Having said that, much of the 'new product' work, like that in traditional markets, will be about incremental developments. These are much easier to predict, and certainly much easier to manage. On the other hand, the absolutely voracious nature of e-commerce means that many more of them will be needed and the result may be that there will be a switch from the Western model, of small numbers of carefully-researched new products, to the Japanese model, where large numbers of products and services are launched simultaneously and are allowed to 'churn' in the marketplace. The decision is in effect then left to the consumers in the marketplace. Those products which survive are the ones which the suppliers then get behind. This was a dubious model where massive investment was required in conventional markets. Not least, significant investment was still required to ensure that the distribution channel got behind the product. With e-commerce on the Internet such investments are very much less costly. Accordingly we should expect to see far more churning of new products, with them being dumped onto the marketplace and the attrition rate being sorted out there rather than in the labs or the marketing teams' offices.

The Customer Bonus

This approach is most obvious in those industrial markets where some customers naturally undertake a substantial share of application development; that is the work on the uses to which the product or service is put. Observing this is especially easy to undertake in e-commerce markets (B2B as well as B2C) where interaction with these customers can be almost continuous. Sound development strategy in these cases may therefore simply be based upon observing what these customers are doing, and selecting the best solution(s) which emerge - and then translating them to the wider customer set. In the process the required changes to the product or service itself may also emerge - inherent in the demands posed by these new applications.

As suggested above, much the same principle can as successfully be applied to consumer products; after all that is what much of marketing research aims to achieve. On the other hand, as for example practised by the Japanese, it can be approached more simply - and directly - and hence much better, intuitively understood by the manager. Often they launch multiple versions of the product or service; for the ultimate test of consumer taste - those which sell best represent the customers voting with their wallets. On the other hand, they are fortunate (or wise) in having a Japanese public educated to try the many new products brought to market. However, though traditional markets may be more conservative, much the same might now also be true for e-commerce markets in the West. Certainly, it is much easier to float new offerings in this environment - though few of the players have adopted this approach to date.

■ What new product developments has your organisation picked up from customer usage, or from ideas submitted by them?

Creative Imitation

Even in e-commerce, the greatest innovation threat usually comes from known competitors. It is important, therefore, to monitor their developments very closely- which it is very easy to do in this new environment (where their websites are just as open to you as to anyone else!) - and to respond in kind immediately.

Any major new change they introduce must be taken seriously, and immediately evaluated to see if it is a genuine threat to (the position of) your brand. At the same time, where time is the essence of such competition, contingency plans must be prepared (and development work on a response begun). The main point to remember is that a brand/market leader with a strong position rarely loses that position to even a serious threat - just so long as it delivers an effective counter (usually by imitation) fast enough. This should be just as true of e-commerce but - with so many competitors across the globe, any one of which may have developed a killer application - it may now be difficult to track all of them!

Creative imitation, though, can offer wider benefits. Many ideas can be productively transferred from other fields of human activity. Indeed, the major technique for finding major new product developments is scanning the horizon - 'creative scanning' - preferably a decade or more ahead (since such major developments take time as well as money). It is true to say that the seeds of major innovations can usually be seen a number of years (or even decades) ahead. This is just as true of e-commerce - the technologies of the next decade and beyond are already open to inspection, though which ones we (or perhaps Microsoft?) will choose to exploit is much less obvious! The scientific breakthroughs which lead to new technologies normally follow this rule; but so also do the changes in lifestyles which lead to new consumer demands.

■ What new product developments have been stimulated by competitors' advances?

A more sophisticated version of creative imitation is not just to launch an imitation (though that may also be done to protect the immediate market position) but to put a very high level of resources into developing the next 'generation' of product based on the imitation - and launching this before the competitor; thus leapfrogging it. This is especially suitable for use in e-commerce, where such generations come fast and furious, and the costs of the technological investments are relatively low.

The Japanese have managed to turn this almost into an art-form, by their mastery of time management in the field of product development. In part this comes from the practices which they have built up in their manufacturing systems - which stress time (JIT, for example) as much as flexibility. What is not appreciated, however, is that these are not production techniques in the Western sense, but are an outcome of many years of training their workforce to apply such approaches. Despite those 'experts' who would promise to instantaneously provide you with these secrets, you would be wise to assume that they take decades to become effective (as they did at Toyota), rather than a matter of days.

In the area of product development, however, the Japanese use another technique - parallel development. Western organisations complete one stage of development before they start the next; because they believe, quite correctly, that otherwise development effort may be wasted (as each stage sets unexpected requirements for the next). The Japanese recognise this inefficiency, but believe that the benefit gained, which is a much faster overall development process (with overlap of stages still giving faster times, despite some of the work having to be redone), far outweighs the extra costs - since it gives them market leadership. It should also be noted, however, that more recently some Japanese corporations (Toyota among them) have been reducing the amount of parallel work because - in traditional markets - it has become too expensive. Where e-commerce markets involve much lower levels of investment, however, it may still be a sound strategy - though, once more, few organisations yet seem to be considering anything as sophisticated as this!

Existing market leaders may take this process a stage further, by having two development teams working in parallel. While one is implementing the last stages of the next generation the other is working on the earlier stages of the next generation but one:

■ How does your own organisation approach its new product development, especially in the context of e-commerce?

■ Does it track customer developments, to gain the 'customer bonus'?
■ Does it track competitive developments, to employ 'creative imitation'?

6.7 DIFFUSION OF INNOVATION

Clearly this theory should be very directly applicable to e-commerce. But as yet it is difficult to establish the balance of the various elements, the technology distribution pattern versus that of the existing product category. It is still too early to say what diffusion patterns have built up and if they are in fact any different to existing ones. At the moment it looks very much like the existing diffusion patterns, with the consumer's peers - on the same level rather than trickling down from higher levels - leading the pack. On the other hand it may be that one can more clearly identify those product leaders, those peer group leaders, and because of the very direct nature of the Internet it may be possible to motivate them more directly. But as yet no one - not even Amazon - seems to have managed to achieve this!

[i] Amor, Daniel, The e-Business (R)Evolution: living and working in an interconnected world, NJ, Prentice Hall PTR (for Hewlett Packard)

[ii] Sterne, Jim, World Wide Web Marketing (2^nd edn.), NY, Wiley, 1999

[iii] T J Peters and R H Waterman, In Search of Excellence (Harper & Row, 1982)a (

[iv] Henderson, Bruce D (1985) "The Rule of Three and Four" The Boston Consulting Group

[v]Michael Porter, Competitive Advantage (Free Press, 1985)

[vi] Mercer, D, A Two Decade Test of Product Life Cycle Theory, pp 269-274, British Journal of Management, Vol. 4 (1993)

[vii] Dhalla, Nariman K & Yuspeh, Sonia (1976) Forget the Product Life Cycle Concept Harvard Business Review January-February 1976

[viii] Mercer, D, Marketing Strategy: the Challenge of the External Environment , Sage, 1998

Chapter 4. GLOBAL HIDE AND SEEK