Integrating Forward

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Integrating Forward

• Meeting demand and managing customers

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Objectives

• Define the Internet economy
• Discuss the return to relevance and value
• Describe customer relationship management

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What is the Internet economy?

• Term coined by Don Tapscott and published in his
  best-selling 1995 book The Digital Economy.
• Refers to how Internet technology will replace
  the industrial economy as an engine for growth
  and change.
• The economy for the Age of Networked
  Intelligence is a digital economy (Tapscott,
  1995).

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Internet economy layers

• Internet Infrastructure
• manufacture infrastructure products (backbone,
  servers, fiber optics, routers)
• Application Infrastructure
• provide products (services) needed to carry out
  activities in digital market (web server s/w,
  tools)
• Intermediary/Market Maker
• increase efficiency of markets by facilitating
  interaction of buyers sellers (brokerage,
  portal)
• Internet Commerce
• generate product service sales to consumers or
  businesses over the Internet (product sales,
  advertising)

Source Cisco/UT Austin, 2000
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Revenues by layer
Source Cisco/UT Austin, 2000
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Reality check

• There is no such thing as Internet Time
• Time favors incumbents
• Branding is not a strategy
• Entrepreneurship cannot be systematized
• Investors are not customers

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Still

• The Internet still changes everything
• Customer power is increasing
• Product selection and customization
• Objective competitive information
• The Internet changes your job
• The distinction between Internet companies and
  non-Internet companies is fading fast
• The real wealth creation is yet to come

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Dimensions of Customer Value

• 1. Conformance to requirements
• 2. Product selection
• 3. Price and brand
• 4. Value-added services
• 5. Relationships and experiences

Source Marchak, 2000
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Dimensions of Customer Value

• 1. Conformance to requirements
• 2. Product selection
• 3. Price and brand
• 4. Value-added services
• 5. Relationships and experiences

Source Marchak, 2000
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Product selection
Example 1

• Largest direct PC manufacturer and one of the
  largest PC manufacturers.
• Sells directly to customers, bypassing retailers
  and passes on the savings.
• Has much less inventory than its competitors and
  much faster deliveries.

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What Rules Did Dell Break?

• You cant customize every order for every
  customer, so offer pre-configured models that
  cant be changed.
• Retailers recommend specific models to customers,
  so the channel cannot be bypassed.

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Where is the Value?

• Traditional PC Value Chain

Step in Value Chain
Component Suppliers
Manufacturer
Retailer
Customer
Example Company
Intel, Microsoft
IBM, Compaq, Hewlett-Packard
Computer City, Future Shop
Individuals, Corporations
Products and Price
Chips 500 Software 500
PC 1500
PC 1750
Selection, Advice
RD, New features
Value Added
Assembly
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Where is the Value?

• Direct PC Value Chain

Step in Value Chain
Manufacturer
Retailer
Customer
Component Suppliers
Intel, Microsoft
Individuals, Corporations
Example Company
PC 1600
Products and Price
Chips 500 Software 500
Value Added
RD, New features
Assembly, selection, advice
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What are the Consequences of the Dell Business
Model?

• Immediate
• Decline of computer retailer.
• PC industry margin squeeze consolidation and
  bankruptcy.

• Future
• Offer non-PC products in an electronics
  marketplace.

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Price and brand
Example 2

• Online retailer of books, CDs, electronics, and
  other products
• Uses software to create detailed customer
  profiles and make customer-specific offers

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Price/cost

• Amazon cuts costs of retail outlets and
  intermediaries.
• Amazons distribution system is less expensive
  than its competitors.
• Amazon gets paid before paying the distributor,
  whereas in the traditional distribution system it
  is the other way around.

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Customization

• Amazon uses the data obtained from customers to
  offer personal buying recommendations.
• Amazons innovations have included one-click
  shopping, its popular bestseller list ranking
  sales on the site, and the associates program.

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Brand

• More personalized products and Web site
  experiences.
• Broader offering of products are built into brand
  experience, allowing more revenue and profit per
  customer.

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What are the Consequences of the Amazon Model?

• Immediate
• Dominant Internet shopping brand.
• A lot of valuable information about customer
  buying.

• Future
• Wal-Mart of the Internet?

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Relationships experiences
Example 3

• Free sharing of MP3 music files.
• Napsters business model is tracking what people
  are searching for and charging advertisers.

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Growth of Napster
Unique Monthly Visitors (000)
10,000
CAGR for 2000 550
8,000
6,000
4,000
2,000
0
Oct. 99
Jan. 00
Mar. 00
Apr. 00
May 00
July 00
Oct. 00
Dec. 99
Feb. 00
Nov. 99
Aug. 00
Sep. 00
June 00
Source IDC
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Online Sales of Digital Music
U.S. Digital Music Download Sales, 19992004
(M)
1,400
1,200
1,000
800
600
400
200
0
1999
2000
2001
2002
2003
2004
Source IDC
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Napster

• Old Solution Retailer
• Expensive
• Takes time to go to store and shop
• Paying for songs you dont want
• Consistent and reliable quality
• Human touch
• Categorization
• Limited Selection

• New Solution Napster
• Low cost
• Convenient
• Only get the music you want
• Less consistent quality
• Searching/downloading issues
• No categorization (yet)
• Greater selection

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Music Value System
Record Industry
Music Consumers
Step in Value Chain
Retailers
Artists
Example Company
Big 5
Hundreds of Millions
Dozens
Thousands
Songs, Albums 1.40 per album
Products and Price
CDs 13.46 each
CDs 16.98 each
CDs and songs
Value Added
Content
Selection, inventory
Production (1.65), Marketing Distribution
(11.19)
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Implications of Napster Model

• Buyer is more important than supplier or
  distribution system.
• Revenue loss for retailer.
• Eliminates physical inventory and distribution
  issues.

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What are the Consequences of the Napster Model?

• Immediate
• Online community building.
• Consumer power over recording companies and
  artists.

• Future
• End of intellectual property rights?
• End of paid-content industry?
• Beginning of flat-fee content industry?

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What is CRM?

• Customer Relationship Management
• Integrated functionality for marketing, sales,
  customer support and call center requirements

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CRM Functionality

• Call center management
• Sales Force Automation
• Contact / lead management
• Expense reporting
• Customer contact point management
• Order entry
• Order tracking
• Service management
• Content management

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The Value of CRM Understanding Customers

• Understanding customer needs allows the
  organization to design customer-specific levels
  of service and track profitability at the
  customer level
• This increases value per customer and customer
  retention

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Types of Information CRM Brings Together

• Sales force reports
• Market surveys
• Focus groups
• Electronic sources
• Call center data
• Customer billing
• Customer information systems
• The Internet

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Possible CRM Solutions

• Advantages
• Industry leader
• Large pool of talent to choose from
• Less expensive than Siebel
• Better meets business needs

• Disadvantages
• Expensive
• Fewer Clarify-qualified professionals
• Risks losing programming and business knowledge
  if programmers leave

Siebel
Clarify
Custom Program
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Implementation rates for CRM
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Customer Relationship Framework
Loyal Chain Attract and retain the best
customers Pricing customized to individual based
on bundle of goods and services
Opportunistic Store Price competition Bundled
product offerings Power shifts to intermediaries
who have store brand
Opportunistic Store
Loyal Chain
many goods (services)
Opportunistic Spot Price competition No customer
loyalty Internet information intensifies
competition
Loyal Link Retain best customers Relationship
value to the customer increases over time Systems
improve branding and customer service
SCOPE
Opportunistic Spot
Loyal Link
single good (service)
short
long
DURATION
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Framework Implications

• Branding is key
• Controlling costs is critical
• Predictive pricing will be used in spot and store
  markets
• Relationship pricing will be used in link and
  chain markets

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Business Requirements for Successful CRM

• Differentiate the offer
• Generate high repeat business
• Provide comparison shopping
• Encourage self-management
• Personalize and customize
• Build collaboration and community

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Summary

• Defined the Internet economy
• Discussed the return to relevance and value
• Described customer relationship management