Internet Realities
by Greg Wester, Corporate Director, Strategic Marketing, Organic Online, Inc.
Source:Summer 1999 NAPAA Newsletter, Issue 29

To be an effective advertiser in today’s marketplace, companies must understand the new dynamics of customer management. To that end, manufacturers seeking to leverage the Internet should keeping in mind the following realities:

At best, investment in the Internet represents a potential gold mine of value. At worst it is a much needed insurance policy. N.I.M.B.Y. (Not In My Budget this Year) is not acceptable.

Efforts must be made to understand the new dynamics of customer and channel evolution.

Relationship building is complex, emotive and non-homogenous.

Factors besides price and going direct will maximize customer relationships.

NIMBY? No Way!
We know that the worldwide web has become a major part of companies’ marketing programs. However, a whopping 42% of firms still say that the Internet is somewhat or not at all important to their overall business strategy. I find that unacceptable.

This lack of interest in the Internet is especially surprising given the Yankee Group’s findings of why corporations are valuing the Internet. As shown below, corporate goals are varied, but the top reasons should be universal to all firms.

The truth of the matter is that the economic justification (or lack of justification) of Internet spending is often a key factor in determining overall Internet importance. There are the true believers (such as egghead.com, and Herman Miller ) which represent perhaps 5% of all companies according to the Yankee Group. Then there are early adapters and momentum builders such as Compaq, Barnes & Noble and GM BuyPower which represent another 15%. The remaining 80% of companies are cautious optimists or web skeptics.

Where Does Your Company Stand, and how will you justify (i.e. take the adjectives and adverbs out of your plea for a bigger Internet budget!) spending?

Certainly the growth of the overall marketplace is one method—we’ve all seen exponentially derived graphics. But such analysis is insufficient to guide strategy. You’ll need to know if the impact in your industry will be greater or less than average.

Forrester Research predicts the greatest impact will be on media, event tickets, electronics and leisure travel. The next most likely areas to become hotbeds of web e-tailing are housewares, gifts and flowers, recreation, apparel, and food and health.

This breakout is helpful, but still not sufficient to guide one’s strategy.

Seek, and You Shall Find New Dynamics
The Internet is a natural application for direct marketing and relationship building. We can get into the customer’s mind, gain their immediate feedback and build a truly one-to-one communications process that builds from a casual shopper to a more lasting, loyal customer.

Few would deny these statements. But is it realistic to think that every entity (i.e., retailer, manufacturer, etc.) hawking items can pursue one-to-one relationships? On last count, this would mean 27 relationships just for the products in my top left kitchen cabinet. Not likely.

Similarly, today we hear a lot about on-line privacy concerns. But as the benefits (i.e., cheaper prices, higher overall satisfaction, etc.) of “online intimacy” begin to outweigh the concerns, these fears may fade in the same way that concern over credit card transactions has waned over the last couple of years. If and when this happens, however, is it realistic to think that consumers will go around offering personal information to dozens of web sites? Again, not likely.

So, where does all of this leave manufacturers? Should they go direct, or not?

Much as been published on the topic of disintermediation and channel conflict. In this article, however, I’d like to raise the question of growing relationships. So the question then becomes, what channels can I best use, and how do I use these channels to grow relationships given my product(s) and my customers’ behavior?

More specifically, manufacturers will need answers to three key questions:
1. Where do you build relationships?
2. Who do you build relationships for?
3. How do you build such relationships?

Today, many manufacturers have fairly low quality relationships with their customers. Dialogue is usually one-way, contact is fairly infrequent, share of customer is an unknown or low, and convenience typically has geographic attributes limiting intimacy.

There are two competing schools of thought concerning tomorrow. Preachers of the “Go Direct” mantra believe that the future customer can support dozens (if not hundreds) of direct relationships. Or at least that “their” relationship will be one of the winners. In the other corner are those that eulogize “Trusted Third Parties” —companies that become so intimate with consumers that they can broker a significant share of a consumer’s needs. E-Bay and Amazon stand tall in this arena.

Given these dynamics, where does your company fall? A detailed discussion of this rather complex query goes beyond the word limit of this article, but the next section lays out a few thoughts to ponder as your firm gathers its task force to tackle this issue.

Corporations Are From Mars, Customers Are From Venus
Relationships are complex, emotive, and non-homogenous. If a firm were to appoint a CRO (Chief Relationship Officer), they would certainly be part of this task force, and their contribution would be to guide corporate policy in such a way that it maximizes the characteristics driving successful relationships in the firm’s line of business.

These characteristics will ultimately vary from industry to industry, but here are four that your CRO should ponder:

• Rhythm
• Engagement
• Fame
• Reciprocity

Rhythm
Rhythm has to do with the frequency of contact and the frequency of change. If you try to relate to someone too frequently they’ll get annoyed (i.e., the infamous answering machine scene and the “2-day rule” from the movie Swingers). Similarly, if you relate to someone the same way all the time or too infrequently, they’ll lose interest. Dow your Internet strategy support adequate rhythm?

Engagement
Engagement relates to the emotive side of the discourse or conversation. A dialogue with a consumer can create the sense of learning or delight. The discourse can also involve the expression of a great deal of personal information or none at all. Does your Internet strategy support adequate engagement?

Fame
Here the critical concept is the evolution of fame from relating to awareness to fame related to evangelism or advocacy. Fame begins with a customer being aware of a product or brand. This is the typical metric in advertising. In the aware stage a consumer may also have a preconceived notion of what a product or brand means. In the visit stage a consumer has an interaction with the brand but doesn’t purchase. Based on this interaction, a consumer’s opinion evolves into a level of brand fame. A similar phenomena occurs in the buy stage. Finally, at the evangelist phase, the consumer is so proud of the brand (or themselves) that they become advocates and tell others. Does your Internet strategy create and maximize evangelism?

Reciprocity
People want something back, but the nature of that something is critical. If you give too much or too little, the relationship is negatively affected.

Also, the reciprocity doesn’t have to come directly from the company if the company is recognized as the “person” responsible for the reciprocity. Does your Internet strategy create and maximize all facets of reciprocity?

Complicating the issue even further is the diversity of consumer’s Internet psychographics. In particular, consumer propensity to become intimate (i.e., share information and form relationships) with Web sites, varies quite a bit based on many factors. A corporation’s channel strategy must reflect this diversity.

In the real world we routinely recognize this diversity: “He is just a friend”. . .”We’re just dating”. . .”She is a work colleague”. . .”We only socialize around the holidays.”

On the Internet, a telling way to segment your customers is along two dimensions: propensity to divulge personal information and the propensity to actually transact online. By breaking these two dimensions into two segments, we have four customer segments:

1. Confidants (visitors that both transact and share plenty of personal information)
2. Customers (people that transact but don’t share optional information)
3. Flirts (those that don’t transact but share info)
4. Browsers (visitors that do neither)

A manufacturer must recognize these segments and develop Rhythm, Engagement, Fame, and Reciprocity approaches to target each of these segments.

Direct Directions
So, you’re looking for the answer to whether your firm should go direct? Sorry, there is no singular reality. But, here is a roadmap to remember:

1. Ultimately customers will only tolerate a certain number of “relationships.” Your intimacy may not make the cut. . .

2. Use caution–for many manufacturers, going direct won’t make sense. Don’t think of direct as a panacea. . .

3. A more universal alternative will be to empower your existing channels, and drive relationships with superior Internet-based promotional, technical, and informational capabilities.

4. Work with your retailers to understand customer behavior via co-op research studies. Can you work with your retailers to develop direct-to-consumer communication strategies that don’t disintermediate the retailer?

5. Aggressively experiment, and act on the findings.

This article is based on Greg Wester’s keynote address to the 1999 NAPAA Annual Conference.