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
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