Emerging Trends in Consumer

Behavior
 TABLE OF CONTENTS
1 Introduction

1.1 Forces Driving Changes In Consumer Behaviour

1.1.1 Supply Side: Technology Evolution
1.1.2 Technologies for Personal Use
1.1.3 Demand Side: Lifestyle and Demographic Changes
2 Emerging Trends In Consumer Behavior
2.1 Disintermediation, and Reintermediation

2.2 Personalization: From Aggregation to Dis-aggregation and Re-aggregation

2.3 Shopping on Demand

2.4 Consumers as Co-producers

2.5 Greater Value Consciousness

2.5.1 Money
2.5.2 Time
2.5.3 Effort
2.5.4 Space

2.6 Blurring Between Consumer and Business Markets

2.7 Power Shift from Marketers to Consumers

2.8 The Automation of Consumption

3 Strategies for Capturing Consumer Information

3.1 Constraints In Physical Marketplaces

3.2 Categories of Information that Marketers look for

3.3 How Online Markets Help To Eliminate Information Constraints

3.4 Role of Information Intermediaries

3.5 Uncertainties

3.5.1 Expanding the reach of online environments

3.5.2 Technology Deployment
3.5.3 Scope of information capture
3.5.4 The potential impact of privacy concerns

3.6 Four Value-Creation Scenarios

 3.6.1 The information toll road scenario
3.6.2 The information fragmentation scenario
3.6.3 The information integrator scenario
3.6.4 The customer control scenario

3.7 Explicit Information Capture Strategies

3.7.1 Targeting high-value information

3.7.2 Capturing high-value information
3.7.3 Leveraging the value of information capture
4 Emerging Strategies for e-commerce
4.1 Choosing A Marketplace Model
4.1.1 Are there transaction savings or benefits to be realized?
4.1.2 Is an electronic market for our product developing quickly?
4.1.3 Do we have substantial market share or buying power?
4.1.4 Would a neutral intermediary be beneficial?

4.2 Rules For Winning

5 CONCLUSIONS

1.0 INTRODUCTION
In the not so distant future, rapid advances in technology, escalating global competition, and
rising consumer expectations for quality, speed of response, and customisation will require
companies to substantially rethink their business models. One thing is clear; the future will be
substantially different from the present. Society went through dramatic changes and upheavals as
a result of the transition from the agricultural age to the industrial age; the transition to the
information age will be accompanied by even greater change. That transition is underway but
still remains in its early stages.

The emerging consensus about the future of various information industries today is that they will
converge because they are all increasingly based on digital electronic technology. The vision
revolves around the presence of an interactive broadband digital "highway" terminating in very
high-resolution multimedia display terminals in consumers' homes and workplaces. The viewer
would be in control of content scheduling and selection; information would not, for the most
part, be "broadcast" (except for live events); rather, it would be stored in digital "video servers"
to be viewed or downloaded on demand.

Todays World Wide Web (WWW) represents a crude approximation of the capabilities and
functionality that are expected to be widely deployed by the middle of next decade. It is serving
as a very large test bed for companies and as a "training platform" for consumers to learn new
modalities of interaction and consumption.
From the perspective of consumers, the primary impact of the deployment of such an
infrastructure will be to ease the often severe time and place constraints that are currently placed
on them. No longer will goods and services be offered primarily at the convenience of the seller;
"anytime, anywhere" purchasing as well as consumption will become commonplace.

These impacts will become more acute as communication bandwidths rise exponentially and
terminal equipment becomes simultaneously more powerful, sophisticated, easier to use,
affordable, and portable (smarter, easier, cheaper and smaller). Once the appropriate hardware is
in place and the telecommunications infrastructure has been established, an enormous range of
services can be exchanged at nominal incremental cost, such as location-independent shopping
and banking, computer-mediated education, and training, professional consultations, and various
informational, entertainment, and leisure services. This combination of technologies is likely to
become quite widespread in the United States by the year 2005 and in other advanced countries
by 2010.

Changing consumer behaviour will make it necessary for the marketing function to change
dramatically as well. In fact, the marketing function will be at the centre of change; marketing
will become increasingly decentralised and fully integrated into business operations. Marketing
and its institutions have a great deal to lose as well as many opportunities to make dramatic
gains. Successful marketing in this new environment will involve "monocasting" or
"pointcasting" of communications, "mass customisation" of all marketing mix elements, a high
degree of customer involvement and control, and far greater integration between marketing and
operations. There will be more efficient utilisation of marketing resources, reduced customer
alienation resulting from misapplied marketing stimuli, "desirable" customers.

1.1 Forces Driving Changes In Consumer Behaviour

Two major forces influence consumer behavior, evolving technology, and changing lifestyles
and demographics. These are respectively described below.

1.1.1 Supply Side: Technology Evolution

Undoubtedly, the pace of technological evolution in recent years is having and will continue to
have a great impact on the lives of consumers. Rudy Puryear, a senior information technology
strategist at Andersen Consulting, describes the new age as the "age of less". However, mass
customisation applies to more than just the product. Technology allows consumers to:

go shopping without going to the store (storeless);

travel without a ticket (ticketless);
work without going to an office (officeless), and so on.

Following aspects of technology are of particular significance:

 Production Technology: Breakthroughs in production technology such as CAD-CAM,
flexible manufacturing systems and just-in-time production are affecting competitive
marketing in a number of ways. For example, they are redefining the limits of quality,
greatly increasing the level of affordability for many products, enabling a higher level of
customisation, and providing customers with a great deal of variety. Other significant
technologies in this arena include photo realistic visualisation, GroupWare (e.g.,
conferencing systems across design functions and across design, manufacturing and
sales), virtual reality, design for manufacturability and assembly databases, component
performance history databases, and 3-D physical modelling technologies such as
stereolithography.
Distribution Technology: Recent innovations in distribution technology include

o computer-assisted logistics (CALs)

o the refinement of scanner and other product identification and tracking
technologies,
o electronic data interchange (EDI)
o point-of-sale (POS) terminals linked to vendors
o expert systems
o satellite-based locational systems
o automated retail and warehouse ordering,
o flow-through logistics

Benefits include

o reduced damages
o reduced supplier and distributor wholesale inventories
o warehousing, transportation, administrative, and manufacturing efficiencies
o reduced "forward buying,"
o better market coverage
o fewer stockouts and distress sales
o more refined target marketing, and
o faster response to market trends.

1.1.2 Technologies for Personal Use

Technologies having the fastest gains in price-performance are those intended for personal rather
than institutional use. Personal information devices have been riding and will continue to ride a
steep experience curve based on the unique "economics of electronics." One of the fundamental
properties of such technologies is their inverse economies of scale; the smaller the unit, the
greater the price-performance. This is due to the fact that smaller units can be produced in mass
quantities with very low (sometimes near-zero) variable costs. Large units, on the other hand,
tend to be produced in small volumes and retain a significant proportion of variable costs. Thus,
today's personal computers offer far more by way of "MIPS per dollar" than do today's
mainframes or supercomputers; video games and other lower end consumer devices tend to offer
even better price-performance than that.
Consumers will rely heavily on these technologies, while producers will rely on a mix of
personal and institutionally oriented technologies. As the power and pervasiveness of the
technologies at their command grow, consumers will be in the hitherto unique and unaccustomed
position of controlling a far greater share of the information and communication flow between
the buyer and seller than ever before. In other words, consumers can and will have more
information about product providers in most cases than providers will have about consumers; far
from being passive "targets" of marketing activity, consumers will dictate the timing and
modality of communications, and they will determine the time and place of any resulting
transaction.

1.1.3 Demand Side: Lifestyle and Demographic Changes

Broad demographic shifts are underway that are causing gradual but major changes in society.
These macro-level changes have a major impact on individual consumer behaviour.

Negative Growth Birth Rates and Rising Median Age in Developed Countries: The birth
rate in the United States has been falling for more than two decades. The decline in the
birth rate began in 1965, when the arrival of "the pill" caused the fertility rate to fall by
30 percent in one year. The legalisation of abortion a decade later caused another
precipitous drop. Wolfe (1996) described this phenomenon as "deyouthing-an historically
unprecedented event going relatively unnoticed." During the 1990s, the number of adults
under the age of 35 will decline by 8.3 million. This transition is having a major effect on
consumption patterns. For example, as a result of deyouthing, the housing industry has
shrunk dramatically; new housing starts have declined from 1.8 million per year in the
1970s to less than a million currently.

Other developed nations are experiencing even more severe effects from this trend
because they tend to have much lower levels of immigration than the United States (more
than 90 percent of the population growth in the United States between 1990 and 2050
will be due to immigration). Populations in most developed countries are actually
shrinking. The trends for Japan are especially ominous. Between 1990 and 20930 alone,
the number of Japanese under the age of 50 will decrease by some 24 million people, a
net 26 percent loss of population. Birth rates in less developed countries by and large
continue above the replacement level, although the overall trend is downward.

The differences in median ages across countries can be quite dramatic. The median age of
adults in the United States is now 43 and will reach 50 in less than two decades.
According to Wolfe (1996), the "psychological centre of gravity" (PCG) is a five-year
window around this median age of adults, or 38 to 48. He suggests that this PCG defines
the primary tendencies of a culture; for the United States, this suggests that middle-age
values and perspectives will increasingly come to dominate the national psyche. In
particular, older consumers tend to respond more favourably to relationship marketing
approaches than do younger consumers.
 More women in workforce: Full time working women now represent 56 percent of all
women and will represent 65 percent by the year 2000. This has put tremendous pressure
on the "traditional" family. The old model was that women would stop working when
they decided to have kids. The new model is that most women must work if they want to
have kids. As a result of the loss of its anchor (i.e., a full-time homemaker), the family as
a unit of social and consumption analysis is becoming obsolete. As single-person or dual-
career households proliferate, the need to define a separate existence or space will result
in highly individualistic lifestyles and behaviours, even within family units. We will
increasingly have to look at individual behaviour; family members exhibit more of a
roommate lifestyle. This will increase the need for personalised attention to each
household. Also as a result of this trend, most households are now relatively time poor
and technically rich. Any time markets impose a time or place constraint; the market will
react negatively. Time in particular will become the most precious commodity. As
activities compete for time, consumers will redesign tasks and consume too much time
and embrace time saving and time-shifting technologies. They will demand hassle for
("get it right the first time on demand. Cooking in the home is quickly becoming a dying
art; nobody does it anymore (almost). A third of our meals are eaten out now; this will
rise to two-thirds. Of this remaining one-third, we do not cook 50 percent of it. The
kitchen is increasingly the communication centre of the house rather than the food centre.
The increased numbers and visibility of women in the workplace has led a gradual
blurring of gender distinction. For men, jewellery, cosmetics, personal care items, and
plastic surgery are all growth markets. By 2000, only 55 percent of the U.S. population
will be WASPS. Hispanics are the fastest growing group and will be the largest minority
by that time. African Americans will remain at 12 percent, whereas the percentage of
Asians will grow. California and Texas will become white-minority states. As a result of
the changing ethnic make-up of U.S. society, several changes are underway. In many
sectors, neglected ethnic markets are becoming lead markets; for example, salsa and other
Mexican sauces now sell more than ketchup. 'Re local grocery store is now a world
bazaar, something that requires extraordinary logistic systems. Increasing cultural
diversity is leading to a clash of value systems: the Protestant work ethic versus other
values. There are also increasing linguistic problems, especially in schools and the
workplace.

2.0 EMERGING TRENDS IN CONSUMER

BEHAVIOUR
Consumer behaviour has been changing that has been the driving force behind the need of
consumer information. We foresee eight major trends in consumer behavior. These trends are
listed in Figure 2.1.

Automation of Consumption
Power Shift to Consumers
 Blurring of Consumer and Business Markets
Greater Value Consciousness
Dis-intermediation and Intermediation
Personalization and Reaggregation
Shopping on Demand
Consumers as Co-producers

Figure 2.1 Changes in Consumer Behaviour

We now discuss each of these eight trends and how changes in them affect the marketing
strategy.

2.1 Disintermediation, and Reintermediation

The current marketing practice depends heavily on the presence of multiple intermediaries
between the producer and consumer. These intermediaries primarily add time and place utilities
to the product utility "engineered" into a niche offering by the producer. They provide broader
and more convenient access to the products for a wider range of customers. In addition to serving
as essential conduits for getting products to the market, intermediaries have also served as
informational conduits.

Producers contact-with end-user customers and must rely on them for information pertaining to
those customers. Intermediaries play a role in directing and filtering information from producers
that is intended for end users. Building an adequate distribution channel is usually the biggest
hurdle that a new entrant must face in establishing a foothold in a market; this is usually the
slowest and most expensive part of the marketing mix to implement. Distribution channels add
huge cost elements. For example, they may include multiple warehouses at the factory,
wholesaler, retailer, and even at consumer level.

As has already been well documented, the electronic world changes all that. Companies small
and large are able to achieve high level of accessibility almost immediately. Establishing a two-
way information flow directly with end users is readily possible. The automation of numerous
administrative tasks enables the company to serve huge numbers of customers efficiently and
effectively. Innovations such as demand-driven marketing can dramatically lower inventory
levels. As a result, more and more companies are finding it possible to deal directly with more
and more of their customers. In the process, they are putting enormous pressures on their
intermediary (e.g., wholesaling and retailing) partners.

This trend towards disintermediation is still in its early phases, and massive dislocations will
occur as a result of it. The trend will also cause major growth in the support services needed by
companies that deal directly with larger numbers of customers. For example, growth in small
package shipping will likely far exceed that in bulk shipments or the building of warehouse
space. Another consequence of this trend may well be reintermediation. By this we mean that
new categories of intermediaries will emerge to capture the value-creating opportunities that will
undoubtedly be thrown up by the use of new ways of interacting between consumers and
producers. As with traditional intermediaries, these too will thrive on the basis of economic
transfer principles; intermediaries that deliver greater value at lower cost will prosper.

Examples of new types of intermediaries may include rating services, automated ordering
services, services based on consolidating numerous small orders from numerous consumers into
more economically viable quantities, and so forth. Market specialists could emerge who would
orchestrate the offerings of numerous suppliers around the specialised needs of a single
customer.

2.2 Personalization: From Aggregation to Dis-aggregation and Re-aggregation

The emergence of a relatively homogeneous mass market earlier in this century led to the
development of various mass marketing approaches that continue to define and dominate the
marketing function today. For some time now, we have recognised that the mass market is
splintering (even atomising) into ever-smaller segments. Talk has even arisen in recent years of a
so-called segment of one, and Stan Davis came up with the powerful oxymoron of "mass
customisation" as the way in which we will have to increasingly operate in the future. Although
we certainly agree with the broad premise of this argument, we believe some important caveats
apply. First, customers are not always looking for customized products; they may be perfectly
content in many cases with a well-designed standardised product.

However, mass customisation applies to more than just the product:

it should envelope all the elements of marketing mix. Thus, the price, advertising
message, the distribution mode may be customized, even if the product is not.
Second, new forms of aggregation of demand will undoubtedly occur. In the past, these
moves were driven entirely by producers. In the future, it will become increasingly facile
for the aggregation to be driven by customers. For example, customers who individually
purchase small quantities of a product will find it very easy to pool their purchases to
enjoy better terms.

2.3 Shopping on Demand

As discussed earlier, consumer behavior in the future will increasingly feature shopping on
demand and consumers will cease to be held hostage to the time and place constraints
historically imposed on them by businesses. Shopping on demand will include anytime,
anywhere procurement as well as anytime, anywhere consumption. Shopping on Demand in
many facets of consumption, consumers will take on increasingly active roles. For example, they
will become directly involved in customising the products they purchase. They will take over
some of the support functions that are normally performed by companies; this trend is akin to the
one toward self-service in retailing. For example, FedEx now allows its customers to track their
own packages via the Internet, bypassing the customer service department altogether.
2.4 Consumers as Co-producers

There is a distinct trend from Insourcing to Outsourcing. Somewhat paradoxically, as consumers

take more control over certain commercial relationships, they will also relinquish a measure of
control in other areas. This is not as contradictory as it might first appear; after all, consumers
have a limited amount of time and effort that they are willing to expend, necessitating trade-offs.
As a result of escalating time pressures and growing economic resources, consumers will begin
to outsource household functions much more over time. The argument here is very similar to the
one that drives outsourcing in the business context; specialist vendors will be used to deliver far
better price-performance value than consumers can create in-house. In other words, the make-
versus-buy question will increasingly be resolved in the favour of buy.

Many services (such as lawn care, house cleaning, and child-care) are already outsourced to a
significant degree. Many new areas will be outsourced in the future. For example, household
product needs may be outsourced to such firms as Proctor and Gamble, home dining may be
outsoureed to restaurants that will deliver prepared food daily to the consumer at home

2.5 Greater Value Consciousness

Although they have benefited in many ways as well, consumers have paid the price for
marketing's extraordinary lack of productivity in the past. High advertising budgets, the
proliferation of brands, runaway sales promotions and uneconomic levels of inventory build up.
All of these activities cost way out of proportion to the value they created (which was, in many
cases, negative). As marketing reforms, customer expectations for value received will soar.

Consumers will demand and receive more value in exchange for the four primary resources at
their disposal: money, time, effort, and space.

2.5.1 Money

Consumers will expect to pay more for most products. They will willingly pay more, provided
that the additional value offered exceeds the incremental price. Because of their recent
experience with major product categories such as computers and consumer electronics,
consumers have come to expect as a given the proposition that products get better and cheaper
over time. An era of negative inflation will characterise many more product categories.

2.5.2 Time

For many consumers, especially those in two-income households, time is a more valuable
currency than money. Many consumers will gladly make a trade-off, paying a higher price if
they can save time in the process. Marketers must be extremely wary of placing heavy time
demands on consumers.

2.5.3 Effort

As life gets ever more complex in so many dimensions, consumers are looking for convenience
and simplicity wherever they can find it.

2.5.4 Space

Given a choice, consumers would rather not be forced to warehouse large quantities of products
in their basements in order to benefit from lower prices. Heavy users should get the advantages
of scale economy; however, they should not have to swallow huge lumps of inventory in order to
do so. Value buying will become paramount, as consumers become more value conscious than
ever. Efficiency, with which information will be shared between customers and companies, it
will be almost impossible for companies to survive without delivering peak value. In contrast
with the past, Consumers will respond far more to innovation-based differentiation than to
image-based differentiation. Barriers to consumption will increasingly disappear as a result of
the adoption of value-based marketing, more creative pricing approaches (leasing, metering), the
separation of form from function.
Given the right value equation, the limits to consumption will be revealed as being far less than
what were believed possible. It is now commonplace for households to have numerous radios,
telephones, calculators, and even computers. Many consumers own three or more watches.
Greater competitive pressures on pricing coupled with an enhanced ability to easily locate the
best price, will be a fact of life in the New World. The impact of this will be threefold.

First, successful manufacturers will increasingly seek to control their prices at retail to
minimise what they view as destructive intra-brand price competition.
Second, the primary drivers of profitability will be mostly on the cost side; companies
with highly efficient production and marketing systems will prosper.
Third, strong customer relationships will give companies an opportunity to broaden those
relationships through the provision of an ever-expanding array of products and services.
In essence, many successful producers of a product will become retailers of a multitude
of other products for the same customer.

2.6 Blurring Between Consumer and Business Markets

The lines between the home and the workplace are rapidly blurring. More and more people work
at least part-time in their homes, and a growing number of people undertake some of their
personal tasks at the office. As this trend continues, many consumer decisions will become more
like business decisions. Many technology applications traditionally seen as home based will be
important to businesses as well. For example, video shopping has great potential in a business
environment; an automobile mechanic will be able to see a picture before ordering a part. To see
how to make repairs the worker has not done in a long time, he or she will be able to view a
video clip. This movement of home based services to business and vice versa can already he
observed. Typical homebound applications such as television and VCRs are now "trickling up"
into business applications. Telephone answering machines trickled up to businesses as voice
mail. Business applications such as e-mail, the Internet, EDI, and accounting software are
trickling down into the home market. Dual-purpose applications include video shopping,
distance learning, travel planning, news on demand, legal or financial advice, information
services, on-line databases, and so forth. Some applications will remain geared to the business or
consumer market, although even here analogous applications may be developed.

2.7 Power Shift from Marketers to Consumers

Inevitably, increased competition and greater access to more powerful information tools will put
greater power in the hands of savvy consumers. As a result, it is possible that buyers will
increasingly be viewed as marketers and sellers as prospects in the marketplace. In any event,
consumers will no longer be targets of marketing activity; they will be knowledgeable and
demanding drivers of it. Marketers will have to show far greater respect for consumers, who
have increasingly become immune to marketing hype. Instead, they will demand content-rich
information and demonstrable product innovations.

Transactions will occur in the context of a complex relationship revolving around

lifestyle issues. Customer managers will be charged explicitly with identifying, retaining,
and growing profitable customer relationships.
 Market activity will be driven almost entirely by buyer demand; marketing management
will essentially become demand management: the task of influencing the level, timing,
and composition of demand in a way that will help the organization achieve its
objectives.
Customer knowledge will truly become the corner-piece of effective marketing, and that
knowledge will become a highly valued corporate resource.
By linking directly into production systems, consumers will effectively become
producers; they will engage in self-service, self-design, and self-ordering and
provisioning.
Consumers will be highly information technology literate; they will therefore not be
impressed by the mere use of such technology. They will be highly efficient at
information searching and processing.
Consumers can conduct product research on-line, log onto bulletin boards and interact
with other consumers, and provide and receive helpful hints about the product, its use,
and acquisition.
In this environment, "information invitations" may become common; companies will
have to seek permission to present their case to consumers by inducing interest, unlike
the message clutter that is rampant today.
As communication between marketers and customers becomes increasingly interactive,
relationship marketing will become the rule rather than the exception. Buyers and sellers
will interact in real time. Just-in-time marketing will replace the traditional just-in-case
marketing.
Time and place constraints on purchasing (and even consumption of many products and
services) will become obsolete. 'Nearly instant gratification of customer needs will be
common; thus, lead times of all kinds (e.g., for product development or between order
placement and shipment) will have to shrink dramatically.

2.8 The Automation of Consumption

Consumers' time poverty and an abundance of information technology will lead to a greatly
increased level of automated transactions with marketers. Akin to automatic replenishment as
practised in the business-to-business marketing area today, such arrangements will become
increasingly commonplace in the future. They may happen directly between consumers and
manufacturers for larger purchases, and through intermediaries for smaller purchases.

3.0 STRATEGIES FOR CAPTURING CONSUMER

INFORMATION
The history of consumer marketing during the past two decades reflects a growing realisation
that information about customers is a key competitive asset. Banks have invested heavily to
integrate information systems that facilitate access to broad activity profiles of customers across
the major product categories offered by a bank. Yet much of the information marketers want
most about consumers has nearly always been out of reach. When is a consumer going to make a
purchase? What is the precise impact of advertising on that decision? What (and how much) are
consumers buying from competitors and across categories?

Online markets (e.g., the World Wide Web or proprietary online services such as America
Online or CompuServe) hold the potential to allow consumer marketers to answer these
questions for the first time. They can provide better visibility of what consumers are buying,
when theyre buying it, and from whom theyre buying it. Companies best able to capture this
information and use it strategically will see market power shift their way as improved
information flows allow them to select the most desirable customers and to better target them
when theyve signalled an intent to purchase. Already a new breed of network-based
intermediaries is positioning to accomplish this information capture by aggregating people and
resources on networks. Once these aggregations reach critical mass, the new intermediaries will
be well positioned to create and capture value by leveraging rich profiles of consumer and
vendor activities.

The implication for companies of all stripes is that they must begin to pursue explicit
information-capture strategies addressing issues of targeting, capturing, leveraging, and
competing for information about consumers. These strategies must in turn reflect a thorough
understanding of the range of potential scenarios by which a still immature online marketplace is
developing.

3.1 Constraints In Physical Marketplaces

Vendors in physical markets, for example, often find that their "window" on transaction histories
tends to be limited to their own customers. For example, United Airlines can identify a business
traveller who flies extensively on United and selectively upgrade service to that traveller to
increase loyalty to United. It has much less ability to identify an American Airlines frequent flyer
that happened to book a flight on United. From Uniteds perspective, this passenger appears as a
relatively uninteresting passenger because she doesnt appear to travel much; therefore she
would not receive special attention or service. If United had access to integrated travel profiles of
all its passengers (even people who have never flown United before), it could be much more
effective in targeting and serving highly profitable business travellers.

Retailers are in a better position than vendors to see a broader range of customer activity, but
even they are hampered by two obstacles.

First, many retailing businesses are highly fragmented, so they only see a small fraction
of the total market.
Secondly and more importantly, they lack an established tool for tying specific
transactions back to identifiable consumers who can then be targeted by marketing
programs. A number of retailers are introducing "frequent buyer" programs in an effort to
overcome this barrier, but these programs are still relatively new and so far consumer
acceptance has been mixed.
In addition to integrated transaction histories, marketers also strive to obtain better visibility on
intent to purchase, especially for higher ticket items such as homes, cars, and airline travel.
Unfortunately, access to this information is also very limited in traditional market environments.

Market research techniques have been developed to measure preferences and likelihood of
purchase but these techniques tend to be segment-based and less useful in identifying specific
individuals who are about to buy. Even direct survey questions on intent to purchase have limited
ability to pinpoint those who actually will purchase.

3.2 Categories of Information that Marketers look for

What marketers would really like to see is demonstrated preference information where a
consumers actions give a clear, early indication that a consumer is about to make a
purchase decision in a specific product category. Such information is also highly time-
sensitive and the ability to obtain this information quickly tends to be limited.
Another category of customer information with enormous value involves the correlation
between exposure to advertising and purchase behaviour.
Finally, another category of information that is very valuable and yet typically requires
considerable expense to compile in traditional market environments involves consumer
satisfaction with specific products or services. This information is essential to drive
customer retention and customer capture programs, as well as for the valuable feedback it
provides for product or service enhancement programs.

3.3 How Online Markets Help To Eliminate Information Constraints

The emergence of online marketing environments offers the potential to enable marketers to
overcome the constraints on information capture that exist in the physical world. Broadly
speaking, this is taking in place two directions.

Capturing information: First, online environments enhance the ability to capture valuable
categories of information conveniently and cost-effectively. Since advertising and
transactions are delivered electronically, it is easier to maintain an electronic record of
this activity over time without requiring any additional data entry. This electronic "trail"
can prove particularly helpful in more effectively coupling across information categories.
For example, a consumer who books airline tickets and reservations online in a travel
forum provides both the potential for generating a rich and integrated travel transaction
history and for coupling that with demonstrated preference information. Thus, when that
consumer begins to ask for information in a travel forum or in a community of interest on
the Internet about places to go in Italy, a strong early indicator is provided that this
person may soon be in the market for a trip to Italy. That information can be cross-
matched with the travel transaction history to determine the relative attractiveness of that
consumer not just for the next travel occasion but over a longer time frame.
Similarly, online information capture allows marketers to discover which advertisements
have impact on purchase behavior. Since advertisements can be targeted down to the
level of an individual consumer, and a purchase can be made simply by clicking an icon
on the advertisement, advertisers can now potentially track much more precisely who has
 seen an advertisement and whether they were moved to purchase. Advertisers can not
only determine the effectiveness of specific advertising in the aggregate, they can now
analyze effectiveness at the level of specific customer segments and even individual
consumers. This invaluable information allows them to more effectively target future
advertisements, and to refine their message for greater impact. Better yet, this
information is potentially available to marketers in real time. Marketers will soon be able
to zero in on consumers whose online behavior has signalled a potential intent to
purchase in a particular product or service category. Theyll then be able to target this
buyer with a product offering before the decision phase of her purchase is complete. By
definition, this information has a relatively short shelf life. Once the transaction has
occurred, the signalling value disappears. In most cases, the value of this information can
be measured in days, if not hours, so the ability to access this information quickly is
critical.
Finally, the information captured online can provide a complete picture of consumers
online activities, including transaction history and demonstrated preferences, across
categories of goods and interests. More complete consumer profiles would allow
marketers to better understand and anticipate consumers purchasing behavior. For
example, an airline or travel vendors understanding of a customer who frequently
purchases tickets to California would be significantly enhanced by the knowledge of
his/her purchasing camping equipment on a regular basis and participating in online
hunting forums. The integration of online information across categories is feasible as
network access providers, large gateways, and information files resident on consumers
computers all have the potential to collect comprehensive online histories.

3.4 Role of Information Intermediaries

The second broad change to information capture brought about by online market-spaces is to
make it possible for an entirely new set of companies to capture information. Unlike in physical
markets, where vendors or retailers are usually best positioned to learn about customer
preferences and transactions, in online markets a new category of network-based intermediaries
is strongly positioned to create value by aggregating people and resources on networks and
thereby developing rich profiles of consumer and vendor activities. These players could be in a
position to capture rich profiles of network users and their transactions on the network - in many
cases, much broader profiles than individual vendors might hope to capture and much more
linked to specific consumers than traditional retailers have been able to capture. Suddenly
previous assumptions about who best captures what kind of information are now no longer so
certain. Related assumptions about who extracts the value from this information now also need
to be reassessed.

3.5 Uncertainties

The full potential and implications of information capture in online environments wont be
realised until a number of challenges are addressed. These challenges and uncertainties fall
broadly into four categories: reach, technology deployment, scope of capture, and privacy.

3.5.1 Expanding the reach of online environments

Online environments are still relatively new platforms for consumers in general and for
commercial transactions in particular. But there is another dimension of reach that is also
relevant What percentage of consumer transactions in relevant product categories is actually
conducted online? Obviously, the ability to capture information about transactions assumes that
these transactions are actually performed online. Today, very few consumer transactions are
conducted online, although the frequency and value of these transactions are growing and many
providers are building out consumer transaction capabilities on networks. In part, the rate of
growth of consumer transactions is likely to be a function of the growth of targeted consumer
advertising that is coupled with transaction capability. In this respect, advertising is likely to lead
transactions.

3.5.2 Technology Deployment

Information capture in online environments also depends on the deployment of an array of

technologies focused on measuring, tracking, collecting, and analysing user activities on the
network. Specifically, Internet-based players are wrestling with two related challenges:

How to capture detailed profiles of the activities of users who come to their Web site?
How to tie this information to the identity of specific users so that they can be proactively
identified and targeted with marketing programs?

With regard to the first, companies, including NetCount and Inters, are investing aggressively in
the technologies necessary to differentiate "hits" to a Web site from actual visits. In some sense,
these companies aspire, in part, to become the Nielsens of the Internet, and to assist advertising
firms and consumer marketers in improving the effectiveness and efficiency of advertising in this
emerging media. As advertisers have become aware, hits are an almost meaningless measure of
user activity since they are distorted in a number of ways. For example, accessing a single web
page with four graphics icons stored as separate graphics files on the Web site will register as
five hits on that page even though it was just one person accessing that page one time.

The nature of the second challenge and the aspirations of players such as I/PRO and Agents, Inc.
are different from those of players focused on tracking site traffic that being to strengthen and
develop relationships with individual consumers. The technologies typically involve creating a
unique identifier embedded in the users browser software or establishing some type of third-
party registration service. The least attractive option, but the one most widely used today in the
absence of some of the new user identification technologies or services, involves requiring users
to register at individual Web sites. The technology innovation to address these needs is well
underway today and any of the technologies are already in an early stage of commercialisation.
There will, however, be inevitable lead times in the deployment of this technology and potential
issues regarding standardization.

Theres a third technology issue, which also bears a mention, although it applies to only one
category of players in the online environment: those companies who also have significant
business presence in traditional marketing environments. These companies must wrestle with the
non-trivial issue of integrating the information captured in online environments with the
information captured on legacy systems in traditional marketing environments.
3.5.3 Scope of information capture

If the technological hurdles to information capture on the Internet are likely to be resolved soon,
another obstacle may prove more difficult. This involves the scope of information capture by any
individual company, especially in fragmented network environments like the Internet. In one
extreme view of the Internet, individual product and service vendors will use the network to dis-
intermediate traditional intermediaries and deal directly with consumers from their own Web
sites.

The implications of this scenario for information capture are profound. In the absence of any
aggregating intermediaries, each Web site will capture a rich profile of the activities on that Web
site but, in most cases, that profile is likely to be a very narrow slice of the total profile of any
consumers activity on the Internet. Unless there is an active market to trade this information
across Web sites, the value of this information will be significantly diminished for all but the
largest vendors. This issue may well lead to the emergence of a broad range of new, network-
based intermediaries who add value by aggregating people and resources on the network. In this
scenario, the value of the information would be greatly enhanced by the ability to aggregate
either across an individual consumers full set of activities or at least across a broad range of
related transactions. Unlike traditional retailers, these new, network-based aggregators would be
able to link these activity profiles with identifiable consumers who could then be targeted and
served with tailored marketing programs.

3.5.4 The potential impact of privacy concerns

The final hurdle that must be overcome in realising the full economic value of the information
captured in online environments has to do with privacy. Ironically, this obstacle grows in size as
the three prior challenges are overcome. The greater the reach of online environments, the more
robust the information capture technology platform, and the broader the scope of information
capture by individual companies, the more privacy is likely to rise as a significant policy issue.

In dealing with concerns over privacy, it is important to remember a key distinction. When
consumers are asked about concerns over privacy, they invariably express a high degree of
concern. However, when the question is re-framed to test willingness to accept something of
value in return for access to detailed information about the consumer, respondents seem to
become much more favourable to providing the information. What seems to upset consumers
most is when the information is captured without their knowledge and when they appear to
receive nothing in return for the information. Privacy policies could evolve in a number of
directions. At the two extremes, there may be no restrictions on information capture or,
alternatively, all forms of information capture may be prohibited. What is much more likely is
that privacy policies may require treating information capture as an option to be chosen by the
user. A more modest resolution would be to allow information capture except in situations where
the user actively takes steps to block information capture. Privacy policies may differ depending
on the category of information involved. For example, ability to capture information about
transaction histories may be more tightly controlled than information about basic demographics
such as age, sex, and size of family. Similarly, privacy policies may differ depending on whether
the issue is information capture or information liquidity. For example, one set of privacy
concerns deals with the ability of vendors or intermediaries to capture information about
consumers and use this information in their own business. A very different set of privacy
concerns may be triggered on issues of information liquidity whether or not the vendor or
intermediary capturing the information can then "sell" this information to third parties. One quite
plausible outcome would be tighter restrictions on information liquidity than on information
capture itself.

3.6 Four Value-Creation Scenarios

These scenarios can be described by focusing on two key dimensions of uncertainty: the scope of
information capture by individual companies in online environments and the degree of
information liquidity.

Figure 3.1: Value Creation Scenarios

3.6.1 The information toll road scenario

In this scenario, new, network-based intermediaries emerge who focus on aggregating people
and resources in online environments and, as a result, are well positioned to capture very broad
profiles of consumer activities on the network. The scope of information capture by individual
companies i.e., these new intermediaries is therefore quite high. In contrast, information
liquidity the ability to buy and sell this information to others is assumed to be very low as
a result of privacy concerns over potential abuses of information. As a result, the intermediaries
are well positioned to become organisers of customer webs, leveraging the unique asset that they
accumulate over time: the rich activity profiles of the customers they aggregate. Unable to "sell"
their profiles to third parties, the intermediaries become natural channels for interactive
advertising and shopping, providing opportunities for third parties to leverage the customer
profiles without actually "acquiring" them and, in the process, further enriching these profiles
based on the next wave of consumer activity. These customer profiles have substantial
commercial value and it is likely that the intermediaries who own them would end up capturing
the bulk of the value-creation potential. Distinct sub-scenarios can be defined by focusing on the
potential roles of categories of intermediaries (e.g., virtual communities, electronic market
makers, gateways, and network access providers, billing/payment service providers).

3.6.2 The information fragmentation scenario

A second scenario imagines that information capture is quite fragmented on networks no

entity is able to capture more than a very narrow slice of a users activity profile online and
that information liquidity is also low. Under these conditions, the potential for value creation
through information capture in online environments is likely to be low and fragmented among
many players. This scenario favours the very large vendors of products and services who are
better able to capture information about their customers online. These vendors can then treat this
information as a distinctive asset that reinforces their competitive advantage.

3.6.3 The information integrator scenario

A third scenario also assumes that information capture is fragmented on networks, but that
information liquidity is high. Under these conditions, one might expect to see the emergence of
specialised information integrators that would collect the information captured in many different
locations and aggregate this information into integrated customer activity profiles. In this
scenario, the value creation potential of the integrated profiles would be high and the ability to
capture this value creation potential would depend upon the concentration of information
integrators relative to information capturers and information customers. Hence, a value-
maximising extreme might see few large integrators with many collection points and
sophisticated integration tools compiling and brokering highly comprehensive consumer
profiles. This scenario would tend to favour smaller vendors of products and services on the
network who would have increased access to a broader range of information about potential
customers. More generally, this scenario would favour companies who are very skilled in the
application of customer information to improve marketing programs.

3.6.4 The customer control scenario

In this scenario, privacy concerns dictate that the customers themselves become the primary
location of information capture and therefore "owners" of the information captured. Information
capture could occur through software installed as a plug-in to the browser residing on the
customers PC. As the customer navigates through the network, the activity profile is
automatically and transparently captured by the customers software. This information could
then be managed by a new form of information intermediary who acts as an agent for the
customer, providing a variety of filtering, vendor seeking, and information "rental" services that
optimize the value of the customer profile to the customer, consistent with the customers
privacy preferences. Under this scenario, the value creation is quite high because the profiles are
rich and comprehensive for individual customers and the customer is in the best position to
capture the value creation potential inherent in these profiles.

This scenario would represent a fundamental shift from traditional information capture roles in
physical space. Traditionally, consumers roles have been limited to providing data about
themselves through surveys, transactions, etc. In the customer control scenario, consumers would
become key collectors and controllers of primary information, potentially obviating the need for
information capturers and, in the process, staking an important piece of the value chain. As a
result, the value-added roles of other players would shift toward data integration and analysis and
away from information capture.

3.7 Explicit Information Capture Strategies

3.7.1 Targeting high-value information

The key issue here is: What kind of information about customers (and potential customers) is
most valuable to your business? For example, many consumer businesses aspire to establish
long-term relationships with customers and therefore value profiles of transaction histories to
provide a measure of the economic potential of that customer. This focus is especially important
when the consumer makes repeated purchases of specific products or services over a long period
of time. However, such a focus may not be as relevant for a residential real estate broker who is
more concerned about information that would suggest a particular person or family is about to
enter the housing market. Similarly, leading vendors in specific markets are more likely to place
higher value on an increased amount of information about their own customers to strengthen
customer retention programs or to better identify cross-selling opportunities. In contrast, new
entrants focused on customer acquisition will be more focused on information about the broader
market rather than their own customers. Being explicit about what kind of information has the
greatest value can be very helpful in developing more targeted and cost-effective information
capture and acquisition strategies.

3.7.2 Capturing high-value information

Once you have a clear focus on the information that is most valuable to the business, the key
challenge is to assess the relative importance of online environments in facilitating capture of
this information and the specific approaches best suited to exploiting the potential of online
environments as a capture medium

What is the relative ability of online environments to capture this information more
quickly and cost effectively compared with traditional marketing environments?
What kinds of online business models and technology platforms are most useful to
exploit the potential of online environments in capturing this information?

The temptation here is to focus too much on technology platforms without adequately
considering business models and their impact on the scope of information capture. Traditional
business models may be much too constrained in terms of exploiting information capture
potential.

3.7.3 Leveraging the value of information capture

This is perhaps the biggest challenge to senior management. Even in traditional market
environments, a large and growing gap has emerged between the amount of information actually
captured or readily available for capture and the actual use of this information to create economic
value. Technology barriers (i.e., the limitations of legacy systems), skill barriers (i.e., the data
mining, analytical and marketing skills required to apply the information in the marketplace) and
organizational barriers (i.e., "smokestack" functional or product organizations that limit the
ability to share information across organizational boundaries) are all responsible for this gap.

Senior management must avoid the temptation to focus on information capture issues while
under-managing the major challenges involved in leveraging the value of this information.
Addressing the following questions may help:

What will be required to integrate the information captured online with other customer
information captured in traditional marketing environments?
What skills will be required to leverage the economic value inherent in the information
captured?
What changes to organizational structures and incentive systems may be required to more
effectively leverage the value of information across organizational boundaries?
What information capture and information sharing policies will be required to maximise
the economic value to your company while at the same time protecting the privacy
concerns of your customers (and potential customers)?
What kinds of new partnerships/relationships and contractual terms and conditions might
be required to maximise the value capture potential for you while reducing the risk that
broader access to this information might undermine the value of your core business?

One key question senior management needs to address is who else might be in a position to
capture this information in an online environment (including the customers themselves) and what
are the implications for your business? Here, the risk is that senior management takes too narrow
a view of potential competitors for high-value information. While focusing on existing
competitors in traditional market environments is important, it is essential to remain alert to the
implications of new, network-based intermediaries who may be in a position to capture a much
broader scope of information.

At the extreme, customers themselves may become competitors for information about
themselves. If they succeed in establishing ownership rights to this information, the implications
for existing businesses could be dramatic. Virtual space offers the potential to fundamentally
alter who captures what kinds of information about customers. Properly understood, online
market-spaces offer significant opportunity to create new value based on a deeper insight into
customers and their activities and preferences. Larger companies in particular must carefully
think through the implications of broader and deeper access to information about customers.
Many companies today enjoy a significant advantage resulting from unique access to limited
information about their own customers. These advantages may be under attack by new entrants
who leverage the powerful information capture potential of online environments to level the
playing field or, even worse, to shift the balance of information power to create new kinds of
advantaged players on that playing field.

4.0 EMERGING STRATEGIES FOR E-

COMMERCE
Electronic commerce is fulfilling its early promise for business-to-business trade. Marketplaces
that connect buyers and sellers are up and running in many product categories, and are creating
value by making trading more efficient. The rewards are split in three ways. Sellers can reach
more customers, gather better information about them, target them more effectively, and serve
them better. The marketplaces also create value for the third-party intermediaries that organise
some of them. Intermediaries can earn transaction commissions and fees for value-added
services such as information capture and analysis, order and payment processing, the integration
of buyers and sellers IT systems, and consulting services. The best rewards go to buyers,
however. Able to compare products and prices easily, they will compel suppliers to compete
more fiercely than ever.

There are three types of marketplace: those controlled by sellers, those controlled by buyers, and
those controlled by neutral third parties as shown in the table below:

Seller Controlled Information-only vendor Web sites

Vendor Web sites with online ordering

Buyer Controlled Web site procurement posting

Purchasing Agents
Purchasing Aggregators

Neutral (Intermediaries) Industry/product-specific search engines

Information Marts (Structured access to vendor and pro
Business malls (multiple vendor store fronts)
Auction spaces
 Table 4.1: Types of Market Places

Marketplaces controlled by sellers are usually set up by a single vendor seeking many buyers.
Their aim is to create or retain value and market power in any transaction. The corporate Web
site set up by Cisco Systems, for example, enables buyers to configure their own routers, check
lead times, prices, and order and shipping status, and confer with technical experts. The site
generates $3 billion in sales a year about 40 percent of the companys total.

In addition, by publishing technical documents on line and giving customers access to order
information, Cisco saves $270 million annually in printing expenses, order and configuration
errors, and telephone-based technical support. Its online market may also increase customer
loyalty by speeding up ordering and order status checking. Buyer-controlled marketplaces are set
up by or for one or more buyers with the aim of shifting power and value in the marketplace to
the buyers side. Many involve an intermediary, but some particularly strong buyers have
developed marketplaces for themselves. Japan Airlines, a big purchaser of in-flight consumable
items such as plastic rubbish bags and disposable cups, posts procurement notices on line in
order to find the most attractive suppliers.

Buyers intermediaries act as agents or aggregators. FreeMarkets Online, a small company that
helps traditional industrial firms locate a pool of competitive suppliers for semi-complex
assembly parts such as plastic injection mouldings and iron castings, is an example of an agent.
First, it offers an offline consulting service to refine the buyers specifications and screen
potential suppliers. When the best contenders have been identified, it sets up and conducts an
online bidding session, which can last for up to three hours. The service offers buyers average
price savings of 10 to 25 percent, and helps them buy more effectively because suppliers submit
bids that better match their needs.

Aggregators take a different approach, combining the purchases of several companies to

increase their collective buying power. TPN Register, a joint venture between GE Information
Services and Thomas Publishing, grew out of an initiative within GE to consolidate purchases,
first within a single division (GE Lighting), then across all divisions. Finally, it expanded beyond
GE to include other leading corporations in a buying consortium. The results have been a
reduction in order processing time (from a week to one day for GE Lighting) and processing
costs, and 10 to 15 percent lower prices. Forrester Research estimated that from its inception in
January 1997 through year-end, TPN Registers purchases would reach $1 billion.2 The
marketplace expects to handle purchases worth $15 billion by the end of 1998.

Neutral marketplaces are set up by third-party intermediaries to match many buyers to many
sellers. One such intermediary is FastParts, which operates an anonymous spot market for the
trading of overstocked electronic components. It receives notice of available stock from sellers,
then matches buyers to sellers at an online auction. All parties benefit. Sellers get higher prices
than they would through a traditional broker; buyers get market-driven prices that are lower than
brokers, plus guaranteed quality because FastParts inspects the products; and FastParts earns up
to 8 percent commission. The losers are the traditional brokers.
Neutral electronic marketplaces do not necessarily eliminate traditional intermediaries, however.
Digital Markets established itself as an electronic intermediary for the trading of electronic
components. Its aim was not to change the relationship between buyers and sellers, but to make
their transactions more efficient. Its online marketplace routes buyers orders to their preferred
distributors after checking for order entry errors and suggesting substitute products. The
intermediary then notifies the buyer of availability and passes on delivery and pricing
information from the seller. Digital Markets also enables buyers to confirm and track their
orders. For this service, it charges a transaction fee to sellers when an order is placed. Buyers pay
nothing.

4.1 Choosing A Marketplace Model

How should companies decide which electronic marketplace model suits them best or, indeed,
evaluate when or whether to participate in a market? The answers to the following four questions
will help them determine an appropriate strategy.

4.1.1 Are there transaction savings or benefits to be realised?

Cost reduction through greater process efficiency is one of the main attractions of the electronic
marketplace. Companies should therefore conduct a detailed analysis of their selling and
procurement processes to discover how much can be saved and where. In early electronic
marketplaces, most companies have focused on reducing the cost of publishing and distributing
printed documents by making promotional materials available on Web sites. DEC estimates that
putting its promotional materials on line is saving $4.5 million annually in catalogue and mailing
costs.

Yet there are many other steps in a typical selling and procurement system that can be
streamlined. From product development to account information management on the selling side,
and from assembling manufacturing specifications to tracking vendors performance on the
procurement side, electronic marketplaces can have a measurable impact. How much of an
impact depends on how lean the buying and selling operation already is. At Dell, many process
costs had already been taken out via direct sales and by earlier efforts to automate and streamline
the supply chain. Web selling has secured additional savings, but they have been small compared
with what most companies could expect including other competitors in the PC business. A
second type of transaction benefit is improved reach. Hartford Computers has clearly benefited
in this way, quadrupling sales by reaching more divisions of GE via TPN Register. A third
advantage accrues for buyers: namely, the reduction in prices that comes of increased or more
transparent competition.

4.1.2 Is an electronic market for our product developing quickly?

The higher the possible savings or benefits, the more enthusiastic competitors are likely to be
about an electronic marketplace. But these are not the only concerns. If electronic markets are
developing quickly for a companys key product categories, then competitive dynamics might
drive it to establish an early presence whether it is a buyer or a seller.
The speed with which an electronic market develops for any product will depend on two factors:
the inefficiency of current transactions and the sophistication of buyers as shown in the figure
below:

Figure 4.1: Opportunities for Electronic Marketplaces

Transaction inefficiencies can arise from poor information flow, complex or multi-tiered
distribution channels, and fragmented supplier and customer bases, among other factors.
Customers sophistication is measured by their ability to define clear product specifications, their
understanding of the differences between vendors, and how comfortable they are about buying a
product without seeing it.

Product categories with inefficient transaction processes and sophisticated customers, such as
MRO products, PCs, travel services, and low-end networking products, will probably move
quickly to electronic marketplaces. Dell, for example, is already seeing the emergence of several
electronic marketplaces for PCs, such as [Link], ECadvantage, and ONSALE. Because the
company moved quickly to develop its own online sales site, it should at least slow the pace at
which customers are attracted to other marketplaces, and hence defer (perhaps indefinitely) the
erosion of its market share and price advantage. Buyers in fast-moving product categories should
use electronic marketplaces to save money on the goods they buy, while sellers should seize the
opportunity to reach new customers and delay the development of a buyer-controlled
marketplace. Third parties should act promptly to attract a critical mass of buyers and sellers to
their own marketplace.

4.1.3 Do we have substantial market share or buying power?

The answer to this question will determine which marketplace model will be most effective.

If a product stands out from competitors and is strongly branded, its maker should consider
selling from its own Web site. Cisco is the clear market leader in routers, for example, and can
therefore depend on its brand alone to draw customers to its site. The seller of a product with a
weaker market position, on the other hand, should probably try to enter several marketplaces in
order to broaden its reach.

Buyers competitive considerations are slightly different. Here the key variables are the size of
procurement expenditure by product, and the fragmentation of the supplier base. Large buyers in
product categories with legions of suppliers will probably choose to set up their own
procurement site, or use a purchase aggregator to increase their buying power even more.
Aggregators also make good sense for most small buyers. If none exists, small buyers with a
large number of potential suppliers should use business malls (multiple vendor storefronts) to
access suppliers easily, or preferably find auctions where intense competition between suppliers
might result in lower prices.

4.1.4 Would a neutral intermediary be beneficial?

From a buyers or sellers point of view, there are several reasons why marketplaces run by a
neutral intermediary might be beneficial. The first is the advantage of scale in transaction
processing. An electronic marketplace that sells nothing but caviar, say, may have insufficient
volume to achieve scale in its back-office organization. But a marketplace that sells all kinds of
gourmet food could be much more efficient. Similarly, a marketplace able to use the same
technology to set up markets in different products would probably have a sizeable cost advantage
over marketplaces tied to single products or industries. The advantages of scale are therefore
likely to drive the emergence of third-party, neutral marketplaces that not only bring buyers and
sellers together, but can act as service bureaus, providing facilities such as customer data
analysis, payment processing, and fulfilment/logistics. A second factor is the value of the
information acquired during buying and selling. Here, the benefits will be enjoyed by the
intermediary. A neutral third party can accumulate information about buying patterns that can be
analysed and sold to sellers to help them improve their marketing. This is unlikely to happen in a
buyer- or seller-controlled marketplace, as the controlling party has little incentive to pass
information on. A third reason is anonymity. Companies concerns about giving competitors
access to sensitive information through their Web sites are allayed in a neutral market in which
participants identities are protected. Much of FastParts success is based on the value of this
anonymity to electronic component manufacturers, which do not want to reveal details of their
production levels or excess capacity. In product markets where anonymity is important, buyers
and sellers alike will flock to neutral marketplaces. Finally, neutral intermediaries can be helpful
because they understand how Internet marketplaces operate. This is a new channel that demands
specific skills and experience. Savvy intermediaries can help market participants move up the
learning curve quickly.

4.2 Rules For Winning

The development of electronic marketplaces is inevitable in many if not most industries. It will
be driven by the release of value through transaction savings and the shift of power to buyers.

For buyers, the strategic imperative is clear. They have little to lose and much to gain. They
could, however, be in danger of falling captive to a seller-controlled marketplace capable of
analysing their buying patterns to extract additional economic surplus. Buyers should therefore
organise a buyer-controlled marketplace as quickly as possible. The dynamics of electronic
marketplaces also create clear opportunities for third-party intermediaries, which can create
value by virtue of their neutrality. Their strategy will be guided by the answers to the same four
questions that buyers and sellers must ask. They need to ascertain where transaction savings can
best be realised in order to know how to integrate their service with buyers and sellers sales
processes, and so offer most value; they must pick industries that are early targets for electronic
marketplaces; they should avoid industries where sellers or buyers are particularly powerful; and
they should consider areas where there is value in anonymity or in the information derived from
transactions.

Sellers are the most vulnerable participants, because they will increasingly have to compete with
other vendors in a transparent environment. Unless a seller stands to gain substantially from
increased reach or reduced transaction costs, its strategy must be to attempt to coopt or prevent
the formation of buyer-controlled markets capable of driving down margins to the lowest-cost
producer. This can be done by quickly setting up seller-controlled marketplaces.

All participants may have to re-examine conventional assumptions about competition. A seller
such as Dell could find that the right strategy is to open up its Web site to competitors products
surrendering some sales in order to retain control over the marketplace. A neutral party will
probably discover that it cannot merely organise and operate the marketplace; instead, it must
quickly integrate into buyers and sellers transactions and systems to enable full process savings
and capture valuable information. Finally, buyers may find that they should cooperate with
unfamiliar players (for example, purchasers of the same product in a different industry) to
maximise their gains, pooling purchases, say, to exert as much control as possible over suppliers.
The dynamics and rapid growth of electronic marketplaces are forcing businesses to choose their
strategies now. Electronic business-to-business commerce is not simply a question of automating
existing channels and processes. It is a whole new way of doing business.

5.0 CONCLUSIONS
In this paper we have discussed the broad parameters of developing an effective marketing
strategy for the emerging business model i.e. the internet.

We have tried to present a view of the changing consumer needs over the next decade This need
has been propelled by a variety of reasons -technology being the main driver. In such a scenario
most of the marketing models that were valid in the world of gravitational commerce will not
work in the electronic commerce. We have just explored one particular area of research in the
new paradigm of marketing that needs to be adopted to cope up with the fast changes taking
place in this arena.

We see that the marketing strategy evolves around the consumer as shown in the diagram below:

We first discussed the changing trends in consumer behaviour. We started by asking us

the most fundamental question: What is marketing? We found that marketing was
something that has to satisfy the consumer whether by product, by delivery of the product
or otherwise.
Then we tried to find out, how this marketing paradigm is affected. This is affected by the
changes in consumer behaviour. Marketings essential task is to satisfy the consumer. If
the consumer changes his preferences then marketing must change its models
appropriately to deliver the value to the consumer. Towards this end we tried to examine
some of the global trends in consumer behaviour and how these may affect marketing.
What is e-commerce and what is e-marketing? was our next focus. We see that e-
commerce is a paradigm where we are changing the way the consumer is delivered the
product.
 We then next go on to discuss the role of information and how information can be
captured in this marketplace.
In the end we present an analytical framework for e-commerce for different industries.
This framework underlines the strategies of a company which is going for e-commerce.