Strategic Marketing for Internet Companies

Milton Kotler, PresidentKotler Marketing Group

IT ForumUniversity Club, Nov. 15, 2000

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Setting the StageWe are moving from an old market economy to a new market economy. The new economy is powered by the Internet

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Jack Welchs ViewEmbrace the Net. Bring me a plan how you are going to transform your business beyond adding an Internet site.

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Ten DifferencesOld Economy Tangible assetsScaleVertical organization- Protected marketsCompetition- Distribution hierarchy- Rigid barriers- StandardizationDomesticCycle time- Seller power

New EconomyIntangible assetsIntrapreneurship- Out-sourcing- Open marketsHypercompetition- Direct to customer- Flexible entry- PersonalizationGlobal- Nanosecond culture- Buyer power

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Key Elements of the Internet EconomyThe new economy is powered by information and network technologyIn B2B, the foundation is information exchange for integrated supply chain managementIn B2C, the Internet has become an integrated sales, communications, distribution, and even product design channelThe Internet has accelerated price transparency

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The New Economy ProblemNew Economy thinking has been driven by technology and technological potentialMarketplaces are driven by customer demandCustomer demand for new technology only proceeds as fast as it provides value to the customer Customers do not buy for potential value, but for current and future valueThe Market has slipped into technology oriented rather than customer oriented thinking

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The New Economy Fast ForwardThe model of generating demand through buzz marketing does not workGenerating customer demand is too costlyPath to profitability must prevailB2B must demonstrate value to customersB2C must create distribution pushThe Internet economy enters its strategic marketing phase

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What is Strategic Marketing?"Marketing is not the art of finding clever ways to dispose of what you make. It is the art of creating genuine customer value." - Dr. Philip Kotler

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The Elements of Strategic MarketingMarket researchCustomer researchSegmentation and targeting customer markets Positioning against the competitionValue proposition and brandingProduct, Pricing, Distribution and Communication strategyTactical campaignBudgeting and implementationMonitoring performance and control

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Do Internet Companies Understand these Elements? A lot of companies have forgotten that in order to keep the client they have in the first place, they have to have models and processes in place to keep their client loyal to their brand -- a business developer for an ASPEverything on the Internet is a component. You sell the features, benefits and convenience... and focus on your customers costs... It is a lot like selling a McDonalds hamburger -- the founder of an Internet software company

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What Strategic Marketing IsntBuzz MarketingPaying for site visitsPR to Impress VCsAdvertising revenue modelRush to IPO

Rush to brand and build shareCutting pricesEyeballing customersStrategic MarketingTargeting unmet needsBranding the valueA business model based on transactionValidating the business model before going publicResearch and target attractive segmentsDemonstrating valueAchieving distribution push

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B2C Strategic Marketing Issues (1)The Internet is not yet revolutionary in B2C: not creating enough additional demandPriceline: the segment with a high preference for price over convenience and flexibility is too small to support a low-margin businessA dot com has to facilitate existing demand not try to create itAmazon.com and Napster: real innovation is in the distributionTicketmaster and travel sites: Internet builds on the original business model

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B2C Strategic Marketing Issues (2)Identify and size realistic target segmentsPets.com: the real opportunity for a pet care specialist was to serve the high-involvement purchaser; but these are niche markets, not mass marketsThe product must be customer driven, not technology drivenLands End addresses real needs with online shopping pals and an online model

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B2C Strategic Marketing Issues (3)Work with the old economy to complete the offering and leverage competenciesJC Penney now offers its logistics for outsourcingYahoo and Kmart partnered to create BlueLight.comPetsmart is the healthiest in pet care - it had 500 stores to bring marketing support and financial stability to its money-losing Internet businessPeapod vs. WebvanContent, hits, and advertising revenues are not an adequate business model

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B2B Strategic Issues (1) A technological Gold RushNumerous startups competing in every nicheCompelling need to acquire customer territoryEveryone is making the same claimsConsequently, the marketing challenge is seen as SHOUTING LOUDER in the mediaPrice is used to gain sales at the expense of profitabilityPremature brandingPanic instead of tacticsThe marketing plan only ratifies internal assumptions

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B2B Strategic Issues (2)To find the winning product model, you must find the right customer market for your technologyCustomers want benefits, not technologiesIs your technology a feature or a product?Is its added value substantial enough to go-to- market as a stand-alone product?Should you go for an M&A to enhance another product on the market

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B2B Strategic Issues (3)The stratification of the customer segments must be reflected in marketing strategyofficedepot.com provides different levels of service and differentiated pricing for its most valuable customers

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B2B Strategic Issues (4)The product has to fit the customers core business processes and cultureDevelop the best technologies if you can, but develop your products around your customers real capabilities, not the ones you wish they hadPart of segment attractiveness is the customers capacity to act on their needFor Apexmail, the biggest obstacle to growth is the refusal of potential customers to understand the economics of outsourcing

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B2B Strategic Issues (5) The most common pricing strategy is competitive pricingThe danger is that competitors will cut their price when they get desperate for a sale and force you to follow The best pricing strategy is economic value pricing. This requires that you document and demonstrate in monetary terms the greater total value of your offeringLowest total costThe price premium paid by the customers customer

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VC Strategic IssuesIs the company going-to-market or to M&A?VCs are presented business plans without either a marketing plan or customer researchVCs need a strategic marketing due diligence process to understand the value of their investment to customers VCs need to incorporate a strategic marketing cultureVCs need a strategic marketing resource to deployVCs need a Marketing Scorecard to track the progress of their investments

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Start-up Strategic IssuesTechnological orientation is a barrier to customer-oriented market strategy that must be overcomeA robust business model and documented progress is the only sustainable defense against equity dilutionBeware: buzz marketing is easier to accept than strategic marketing, because it toots the technology hornUnfocused market entry is the norm:leads to higher costs, frustrated and demoralized salespeople, out-of-control pricing, and unrealized marketing potentialProduct models and sales strategy must be guided by a strategic marketing plan

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Why Strategic Marketing? Companies in the New Economy need to know where they fit in converging marketsWhat is the strategic direction you must follow to participate in this process?Are you a product? Focus marketing resources on your brand equity to a target segmentAre you the consolidator/aggregator? Aggregators acquire outsourced components, while focusing their resources on understanding and meeting customer needsAre you a value-adding feature? Feature companies merge or partner to serve the customers need for superior, comprehensive product offerings

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