Integrating Forward

Meeting demand and managing customers

Objectives Define the Internet economy Discuss the return to relevance and

value Describe customer relationship

management

What is the Internet economy? Term coined by Don Tapscott and published

in his best-selling 1995 book The Digital Economy.

Refers to how Internet technology will replace the industrial economy as an engine for growth and change.

“The economy for the Age of Networked Intelligence is a digital economy” (Tapscott, 1995).

Internet economy layers Internet Infrastructure

manufacture infrastructure products (backbone, servers, fiber optics, routers)

Application Infrastructure provide products (services) needed to carry out activities in

digital market (web server s/w, tools) Intermediary/Market Maker

increase efficiency of markets by facilitating interaction of buyers & sellers (brokerage, portal)

Internet Commerce generate product & service sales to consumers or

businesses over the Internet (product sales, advertising)

Source: Cisco/UT Austin, 2000

Revenues by layer

intermediary14%

infrastructure35%

commerce32%

application19%

Source: Cisco/UT Austin, 2000

Reality check

There is no such thing as “Internet Time” Time favors incumbents

Branding is not a strategy Entrepreneurship cannot be systematized Investors are not customers

Still… The Internet still changes everything Customer power is increasing

Product selection and customization Objective competitive information

The Internet changes your job The distinction between Internet companies

and non-Internet companies is fading fast The real wealth creation is yet to come

Dimensions of Customer Value

1.Conformance to requirements

2.Product selection

3.Price and brand

4.Value-added services

5.Relationships and experiences

Source: Marchak, 2000

Dimensions of Customer Value

1.Conformance to requirements

2.Product selection

3.Price and brand

4.Value-added services

5.Relationships and experiences

Source: Marchak, 2000

Product selection Largest direct PC manufacturer and one

of the largest PC manufacturers. Sells directly to customers, bypassing

retailers and passes on the savings. Has much less inventory than its

competitors and much faster deliveries.

Example #1

What Rules Did Dell Break? You can’t customize every order for

every customer, so offer pre-configured models that can’t be changed.

Retailers recommend specific models to customers, so the channel cannot be bypassed.

Where is the Value?Traditional PC Value ChainTraditional PC Value Chain

Component Suppliers

Intel, Intel, MicrosoftMicrosoft

ManufacturerManufacturer

IBM, Compaq, IBM, Compaq, Hewlett-Hewlett-PackardPackard

RetailerRetailer

Computer Computer City, Future City, Future ShopShop

CustomerCustomer

Individuals, Corporations

Example Example CompanyCompany

Step in Step in Value Value ChainChain

Products Products and Priceand Price

Chips $500Chips $500Software $500Software $500

PC $1500PC $1500 PC $1750PC $1750

Value Value AddedAdded

R&D, New R&D, New featuresfeatures

AssemblyAssembly Selection, Selection, AdviceAdvice

Where is the Value?Direct PC Value ChainDirect PC Value Chain

Intel, Intel, MicrosoftMicrosoft

ManufacturerManufacturer RetailerRetailer CustomerCustomer

Individuals, Individuals, CorporationsCorporations

Example Example CompanyCompany

Step in Step in Value Value ChainChain

Products Products and Priceand Price

Chips $500Chips $500Software $500Software $500

PC $1600PC $1600

Value Value AddedAdded

R&D, New R&D, New featuresfeatures

Assembly,Assembly, selection, selection, adviceadvice

Component Component SuppliersSuppliers

What are the Consequences of the Dell Business Model?

Immediate Decline of computer

retailer. PC industry margin

squeeze – consolidation and bankruptcy.

Future Offer non-PC

products in an electronics marketplace.

Price and brand Online retailer of books, CDs,

electronics, and other products Uses software to create detailed

customer profiles and make customer-specific offers

                                 

Example #2

Price/cost Amazon cuts costs of retail outlets and

intermediaries. Amazon’s distribution system is less

expensive than its competitors. Amazon gets paid before paying the

distributor, whereas in the traditional distribution system it is the other way around.

Customization Amazon uses the data obtained from

customers to offer personal buying recommendations.

Amazon’s innovations have included one-click shopping, its popular bestseller list ranking sales on the site, and the associates program.

Brand More personalized products and Web

site experiences. Broader offering of products are built

into brand experience, allowing more revenue and profit per customer.

What are the Consequences of the Amazon Model?

Immediate Dominant Internet

shopping brand. A lot of valuable

information about customer buying.

Future Wal-Mart of the

Internet?

Relationships & experiences Free sharing of MP3 music files. Napster’s business model is tracking

what people are searching for and charging advertisers.

Example #3

Growth of Napster

0

2,000

4,000

6,000

8,000

10,000O

ct.

’99

Nov.

’99

Dec.

’99

Jan

. ’0

0

Feb

. ’0

0

Mar.

’00

Ap

r. ’

00

May ’

00

Jun

e ’

00

July

’00

Au

g.

’00

Sep

. ’0

0

Oct.

’00

CAGR for 2000 = 550%

Unique Monthly Visitors (000)

Source: IDCSource: IDC

Online Sales of Digital Music

0

200

400

600

800

1,000

1,200

1,400

1999 2000 2001 2002 2003 2004

($M) U.S. Digital Music Download Sales,

1999–2004

Source: IDCSource: IDC

NapsterOld Solution: Retailer Expensive Takes time to go to

store and shop Paying for songs you

don’t want Consistent and reliable

quality “Human touch” Categorization Limited Selection

New Solution: Napster Low cost Convenient Only get the music you

want Less consistent quality Searching/downloading

issues No categorization (yet) Greater selection

Music Value System

ArtistsArtistsRecord Record

IndustryIndustryMusic Music

ConsumersConsumers

ThousandsThousands Big 5Big 5 Hundreds of Hundreds of MillionsMillions

RetailersRetailers

DozensDozensExample Example CompanyCompany

Step in Step in Value Value ChainChain

Products Products and Priceand Price

Value Value AddedAdded

Songs, Songs, Albums: Albums: $1.40 per $1.40 per albumalbum

ContentContent

CDs: CDs: $13.46 $13.46 eacheach

Production Production ($1.65), ($1.65), Marketing & Marketing & Distribution Distribution ($11.19)($11.19)

CDs: $16.98 CDs: $16.98 eacheach

Selection, Selection, inventoryinventory

CDs and CDs and songssongs

Implications of Napster Model Buyer is more important than supplier or

distribution system. Revenue loss for retailer. Eliminates physical inventory and

distribution issues.

What are the Consequences of the Napster Model?

Immediate Online community

building. Consumer power

over recording companies and artists.

Future End of intellectual

property rights? End of paid-content

industry? Beginning of flat-fee

content industry?

What is CRM? Customer Relationship Management Integrated functionality for marketing,

sales, customer support and call center requirements

CRM Functionality Call center management Sales Force Automation

Contact / lead management Expense reporting

Customer contact point management Order entry Order tracking Service management Content management

The Value of CRM: Understanding Customers Understanding customer needs allows

the organization to design customer-specific levels of service and track profitability at the customer level

This increases value per customer and customer retention

Types of Information CRM Brings Together Sales force reports Market surveys Focus groups Electronic sources

Call center data Customer billing Customer information systems The Internet

Possible CRM Solutions

AdvantagesAdvantages• Industry leader Industry leader • Large pool of talent Large pool of talent

to choose fromto choose from

• Less expensive than Less expensive than SiebelSiebel

• Better meets Better meets business needsbusiness needs

DisadvantagesDisadvantages• ExpensiveExpensive

• Fewer Clarify-Fewer Clarify-qualified qualified professionalsprofessionals

• Risks losing Risks losing programming and programming and business knowledge business knowledge if programmers leaveif programmers leave

SiebelSiebel

ClarifyClarify

Custom Custom ProgramProgram

Implementation rates for CRM

Customer Relationship Framework

Opportunistic Store

Opportunistic Spot

Loyal Chain

Loyal Link

SC

OP

Esi

ng

le g

oo

d(s

ervi

ce)

ma

ny

go

ods

(se

rvic

es)

DURATIONshort long

Opportunistic SpotPrice competition

No customer loyaltyInternet information intensifies

competition

Opportunistic StorePrice competition

Bundled product offeringsPower shifts to intermediaries who

have store brandLoyal Link

Retain best customersRelationship value to the customer

increases over timeSystems improve branding and

customer service

Loyal ChainAttract and retain the best

customersPricing customized to individual based on bundle of goods and

services

Framework Implications Branding is key Controlling costs is critical Predictive pricing will be used in spot

and store markets Relationship pricing will be used in link

and chain markets

Business Requirements for Successful CRM Differentiate the offer Generate high repeat business Provide comparison shopping Encourage self-management Personalize and customize Build collaboration and community

Summary Defined the Internet economy Discussed the return to relevance and

value Described customer relationship

management