E-Consumer-Marketing and the Old World

• Case 1: Fast moving traditionalist, Pepsi Cola
• Case 2: Traditionalist and innovator, McDonald's
• Struggle between Old and New Economy
• Many took the lessons: Online allure grows for traditional companies
• No future for stand alone E-tail?
• Emerging alliances between the old and new
• The fight in the supply chain
• The great opportunities for brands
• From the 4 P's to "focused client share"
• One-to-one marketing
• Conclusions
• Summary: the first lessons of E-marketing

Case 1: Fast moving traditionalist, Pepsi Cola

PepsiCo spent $3.3 billion in 1998 to acquire Tropicana, the leading U.S. orange juice brand and surpassed Campbell as the third largest U.S. grocery brand in late January 2000. Pepsi owns the snack brand Frito-Lay and by just accounting for a quarter of sales from this activity, they now control two-fifth of the world market for salty snacks and in the fourth quarter of 1999, they generated more than 71% of PepsiCos profit. For the first time in history, PepsiCo boasts two of the three top-selling U.S. soft drinks on store shelves, Pepsi and &Mountain Dew. In addition, Pepsis Aquafina bottled water is the no. 1 brand in that fast growing category, while its Liptons Iced tea brand boasts a 16 % point share lead over Coca Colas Nestea.

Pepsi spun off the companys capital-intensive bottling operations into an independent public company and sold in 1997 their fast food activities. By almost every financial measure, Pepsi is now in better shape then when CEO Roger Enrico took over the helm in 1996. Although its $20.4 billion in sales is now one-third lower, the companys net is higher by more than $100 million compared to its $2.1 billion net from last year. Operating margins have risen to 15% from 10%, while the return on capital has jumped to 20% from 15%. If only Wall Street would notice, the company shares are still in the thirties just as they were a few years ago. (Source BW April 4)

Case 2: Traditionalist and innovator, McDonald's

McDonalds took an interest in the 56 outlets of Chipotle Mexican Grill, the Denver-based chain, in 1998, and bought the 23 upscale London coffee and sandwich shops comprising Aroma Café, in 1999. They also acquired Donatos Pizzas 148 Columbus Ohio chain later in 1999. Recently, they announced their interest in Boston Market, a chain of 751 restaurants, which may become part of the Donato's, Chipotle and Mickey Ds family. CEO Jack M. Greenberg might now be able to bring the much-needed diversity to McDonalds menu after previous experiments to broaden fell flat. There seems to be a good chance for them to achieve that goal in the coming years.

McDonalds also acquired a small equity stake in food.com , the online takeout venture. Investment bankers took it from there and on March 8, the fast food giant led a group of companies, including Kraft Foods Inc. and Blockbuster Inc, to invest $800 million in the venture. This is a typical example of incubatorship. A giant uses its powerful network to collect complementary partners and to finance with them a new dot.com. If it is successful, it will create enormous value and will change the competitive structure in the explored market. (Source BW April 4)

Struggle between Old and New Economy

Very clearly, McDonalds approach makes more sense then PepsiCos because the company is not only relying on concepts of the old economy but also separately launching business with all the key elements of the new economy. For example, working through portals for a clear affinity group/vertical market, co-branding, partnerships, and E-Finance with a good balance between little invested money, limited risk for the company and huge growth opportunities is a win-win solution in modern marketing. And we are further reminded that Forrester Research predicts that Web spending will soar from $20 billion in 1999 to $184 billion in 2004, thats everything except peanuts.

What PepsiCo did is of course brilliant, but they do not seem to realize that sticking to the solutions of the old economy alone such as increasing your market share with strong brands on the shelves of the retailer is simply not good enough. Neither is selecting primarily high margin and high growth products, nor divesting non-core business, unless E-commerce initiatives are also adopted. In the future, it is all about a new customer approach. In her book customers.com, Patricia Seybold describes how in these days we have to embark on our electronic business voyage. She urges that we should not ignore the following customers fundamentals:

• Dont waste your time!
• Remember who we are!
• Make it easy for us to order and procure service!
• Make sure your service delights us!
• Customize your products and service for me!

Many took the lessons: Online allure grows for traditional companies

Many dot.coms are far from successes. Companies like CD Now (music retailer), Value America, Smarterkids.com, Dr Koop.com (medical advice), Drugstore.com, eToys (fun and games), iVillage (womens web), Peapod and Webvan (E-groceries) have only a fraction, 20 % or less, of the value they had a year ago or less. The reason is not primarily that they have made big mistakes, though in fact they certainly did, but because many traditional companies finally realized that in the long run every part of their business will have some internet components. So, they are implementing more and more of these E-Business elements and becoming much more competitive.

Reputable retailers, like WalMart, have seen their share prices rise relatively because investors are again seeking proven businesses. Traditional companies often have great expertise with customer service , including logistics, and trusted brands . Dot.coms often fall short of these offerings. Brick and mortar retailers are now in the position to offer multi-channel possibilities to their customers. Customers prefer this because consumers show a preference for having the option to shop on line, with the added ability to take returns to a store. (Source: USA Today, April 4 that quotes e.g. Jerry Storch, President of new business at Target stores.)

No future for stand alone E-tail?

As a result of this preference for multi-channel possibilities, many E-tailers like eToys are either in trouble or are unsure of long term success. As Joe Sawyer, Forrester Research analyst, says in a report that appeared in the April 17 issue of TIME, "The online retail honeymoon is over." According to Sawyer, most E-tailers will not be around by next year. We may therefore expect that many dot.coms will be bought by traditionals as a result of NASDAQ stock prices being in a "bear" market (more than 20 % down, see also my article, First Innovation and Then Crisis ). The first indication of this development came from the announcement on Wall Streets "bloody stockmarket Friday" April 14, that retailer Ahold took a 51% control in Peapod, which perhaps saved Peapod from bankruptcy.

The plight of E-tailers sharply separates them from their more resilient Internet and technology brethren, like "technology" blue chips Cisco, Microsoft, Intel, Oracle, HP, Qualcomm and Sun, that have been able to show profits. Nevertheless, these companies faced huge losses of up to 25% of their total market cap in the past weeks. Obviously, investors think that, in contrast with "real" technology players, E-tailers have too little substance, unsure profit perspectives, and many problems such as inefficient logistics to suggest an independent future. This will become more the case when "normal" retailers are able to deliver online and show that they understand E-business. Most E-tail businesses will be bought by the oldies!

Emerging alliances between the old and new

In my article, Global Business 2000 , I described a few strategic alliances such as Wal-Mart and AOL; Yahoo and K-Mart. Since then, Sears also made a deal with AOL and Barnes & Noble online partnered with Bertelsmann.

On April 3, 2000,Target, the aforementioned company that operates a chain of retail stores, said that eleven retail companies will create World Wide Retail Exchange, a business-to-business web-based exchange for retailers. The retail partners are Albertson's, Auchan, Casino, CVS, Kingfisher, Marks & Spencer, Royal Ahold, Target, Tesco, and Safeway. Another retailer, Cora, is expected to join the partnership in the near future. Investment in the World Wide Retail Exchange is estimated to reach $100 million within the first few years.

It seems to be a very powerful coalition and a strong warning to producers in the supply chain like PepsiCo to improve their efficiency again and lower their prices. More generally, we now must draw the conclusion that nobody, including global companies, can survive without alliances because that is the only way to match the needs of the customers consistently.

The fight in the supply chain

Carmakers General Motors and Ford announced recently that they will merge their internet-based exchanges and turn their purchase management completely to the internet. Daimler Chrysler will join the new venture within two years. The exchanges are aimed to help automakers cut costs. The venture will be open to all auto manufacturers and suppliers, creating one of the worlds largest virtual marketplace. As a result, all the suppliers, not only in the car industry, should know that a new round of price cuts will be unavoidable. This process is comparable with cash register based ECR (efficient consumer response) studies ten years ago; the difference is that we now go online and receive much better and faster information.

Auction techniques pioneered by E-Bay are emerging and those have been brought to perfection in the supply chain by players like SmartClicks. This company has bartering systems with re-intermediation: companies swap products and services through a mediator. Furthermore, on the consumer level, we have Priceline.com , a company with a reverse auction model: companies increasingly will be bidding to get customers business. That stimulates also comparable trends like bid quotes and E-catalogs. Price differences are becoming, as a result of these practices, much more transparent and will diminish more and more if there are no substantial quality differences. The outcome of this process will be that a tremendous new efficiency wave will occur and companies will have to grow fast again to avoid facing a profit drain and, as a result, danger to their continuity.

The great opportunities for brands

The strongest on-line-brand name is most probably AOL and the best known, Amazon.com. Quicken, the consumer brand name from Intuit, has perhaps the best co-branded "dashboard" concept as a financial supermarket. "Dashboard" here means that the umbrella brand and the sub-label brands are one unit just as a dashboard in a car. ETrade put their brand as stockbroker on many consumer and professional sites and in doing so they boost their image. Companies are more and more frequently becoming aware that a brand creates new business opportunities sometimes far away from the original core business. Sponsoring is important to relate a brand to "images" and thats why IBM is sponsoring Olympic Games, to establish a more dynamic profile.

We may expect that entertainment opportunities will be more important to create value. Heineken, for example, is connected through long term advertising with tennis and Amstel with soccer. Big events like world championships could easily in the future be used as communities to merchandise sport articles, videos, books and souvenirs, etc. pushed by these brands. Many consumers in these communities who perhaps never before used these brands could become excited and immediately buy not only "Heineken" but also image-related products. This could turn into a real goldmine that could exceed, when there are millions of consumers, all the past value-creating of the old economy. Coca Cola , Pepsi, Nestle, Danon, and others with their extremely strong brands should be aware of this.

Finally, perhaps old marketing players have to question themselves: Is there no reason to act like sports article marketer, NIKE, only exploiting their brands and outsourcing all the assets including production and logistics? Anyhow, it might be clear that many players with strong brands have unique chances to develop into the new economy if they use their brands for entertaining communities.

From the 4 P's to "focused client share"

All of us know that marketing is in origin about product, price, place and promotion, or the so-called 4 Ps. "Products" are still important, but without brands and services they will not mean very much in the future. "Price" will become more and more transparent due to ongoing online comparisons. New loyalty and personalization systems will nevertheless be almost sure to replace the down-to-earth interest in pricing. "Place" will be online and not of much interest or we will consider virtual places as "real". I have already stated in my article about change management that we have to "dislocate our business" in this digital area. Finally, "promotion" is extremely important, certainly in connection with partnerships.

So we may expect that the 4 Ps will be replaced by issues like personalization, service, partnering, co-branding, and going virtual or something like FOCUSED CLIENT SHARE. The client creates his own wide range eco-system for his variety of needs and only an alliance of partners will be able to satisfy those needs. David Siegal in " Futurize your Enterprise " (1999 Wiley, New York) elaborated very interesting models for this personalization. As a result of these, we see that after we had portals for general needs like AOL, Yahoo , and Lycos , followed by niche- or vertical portals with a strong connection to one community, we will soon get customer- centric portals supplied by co-branded vendors directed by clients preferences. These personalized portals will be based on the principle of one-to-one marketing facilitated with database marketing.

One-to-one marketing

Don Pepper and Martha Rogers are the Gurus of this theory. They created a number of "one-to-one" titles, such as " The One-to-one Manager" ; " The One-to-one Future"; "Enterprise One-to-one" and "The One-to-one Field Book". They developed a new theory for competition and have documented their work with a great number of examples. They finally named it "one-to- one marketing" which is the same as customer relationship management (CRM). A relationship is, in their view, made up of a continuing series of collaborative actions. (See " The One-to-one Manager " Doubleday, 1999 New York.)

CRM iniative or a process of implementing a one-to-one program can be achieved by a series of four basic steps: identify, differentiate, interact and customize. These steps are roughly in order of increasing difficulty and complexity. Not many companies have mastered this process yet, partly because technology for database marketing facilitates at this moment is still insufficient. But that will change soon and we will enter the period of customer-centric marketing approaches. We will get a partner-based and co-branded "focused client share" approach and the customer will be really king!

Conclusions

1] The winning formula is personalization- digital relationships- loyaltee programs or anywhere, anyway and anytime.
2] B2B will be the "mainstreet" for the struggle between the old- and the new players; in retail some "oldies" wil win but only after they became E-business players with multi-chanel approaches.
3] Without strong [co] brands and partnerships no company can be a dominant global player.
4] Marketing without entertainment is like people without clothes: naked!
5] Most marketeers have no clue about technology so we have to educate them.

Summary: the first lessons of E-marketing

Literature:
Seybold, Patricia, Customer.com

De bijdragen in m@n@gement van onze correspondent in Silicon Valley oogsten veel waardering. Burt Rost van Tonningen heeft zijn bijdragen verwerkt en gebundeld in een integrale visie op E-commerce, E-organization en E-strategy met als titel:

"PREPARING FOR THE E-TORNADO:
Observations from a European in Silicon Valley"

In november 2000 heeft Holland Business Publications dit boek gepubliceerd. U kunt het on-line bestellen .