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
commerce
32%
infrastructure
35%
intermediary
14%
application
19%
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
Example #1
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.
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 Chain
Step in Value Component
Chain
Suppliers
Manufacturer
Example
Company
Intel, Microsoft
IBM, Compaq,
Hewlett-Packard
Computer
City, Future
Shop
Products
and Price
Chips $500
Software $500
PC $1500
PC $1750
Value
Added
R&D, New
features
Assembly
Selection, Advice
Retailer
Customer
Individuals,
Corporations
Where is the Value?
Direct PC Value Chain
Step in
Value Chain
Component
Suppliers
Manufacturer
Example
Company
Intel, Microsoft
Products
and Price
Chips $500
Software $500
PC $1600
Value
Added
R&D, New
features
Assembly,
selection,
advice
Retailer
Customer
Individuals,
Corporations
What are the Consequences
of the Dell Business Model?
Immediate
 Decline of computer
retailer.
 PC industry margin
squeeze –
consolidation and
bankruptcy.
Future
 Offer non-PC
products in an
electronics
marketplace.
Example #2
Price and brand
 Online retailer of books, CDs,
electronics, and other products
 Uses software to create detailed
customer profiles and make customerspecific offers
Price/cost
 Amazon cuts costs of retail outlets and
intermediaries.
 Amazon’s distribution system is less
expensive than its competitors.
 Amazon gets paid before paying the
distributor, whereas in the traditional
distribution system it is the other way
around.
Customization
 Amazon uses the data obtained from
customers to offer personal buying
recommendations.
 Amazon’s innovations have included
one-click shopping, its popular
bestseller list ranking sales on the site,
and the associates program.
Brand
 More personalized products and Web
site experiences.
 Broader offering of products are built
into brand experience, allowing more
revenue and profit per customer.
What are the Consequences
of the Amazon Model?
Immediate
 Dominant Internet
shopping brand.
 A lot of valuable
information about
customer buying.
Future
 Wal-Mart of the
Internet?
Example #3
Relationships & experiences
 Free sharing of MP3 music files.
 Napster’s business model is tracking
what people are searching for and
charging advertisers.
Growth of Napster
Unique Monthly Visitors (000)
10,000
CAGR for 2000 = 550%
8,000
6,000
4,000
2,000
Oct. ’00
Sep. ’00
Aug. ’00
July ’00
June ’00
May ’00
Apr. ’00
Mar. ’00
Feb. ’00
Jan. ’00
Dec. ’99
Nov. ’99
Oct. ’99
0
Source: IDC
Online Sales of Digital Music
($M)
U.S. Digital Music Download Sales,
1999–2004
1,400
1,200
1,000
800
600
400
200
0
1999
2000
2001
2002
2003
2004
Source: IDC
Napster
Old 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
Step in
Value
Chain
Artists
Example
Company Thousands
Products
and Price
Songs,
Albums:
$1.40 per
album
Value
Added
Content
Record
Industry
Big 5
Retailers
Dozens
CDs: $13.46
each
CDs: $16.98
each
Production
($1.65),
Marketing &
Distribution
($11.19)
Selection,
inventory
Music
Consumers
Hundreds of
Millions
CDs and
songs
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 customerspecific 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
Siebel
Advantages
• Industry leader
• Large pool of talent to
choose from
Clarify •
Custom
Program
•
Disadvantages
• Expensive
•
Fewer Clarify-qualified
professionals
•
Risks losing
programming and
business knowledge if
programmers leave
Less expensive than
Siebel
Better meets business
needs
Implementation rates for CRM
many goods
(services)
Opportunistic Store Loyal Chain
Price competition Attract and retain the best
customers
Opportunistic
Store
Loyal
Chain
Bundled product offerings
Pricing customized to individual
Power shifts to intermediaries
whoon bundle of goods and
based
have store brand
services
Opportunistic Spot Loyal Link
Retain best customers
Price competition
Opportunistic Spot
RelationshipLoyal
value Link
to the customer
No customer loyalty
increases over time
Internet information intensifies
competition Systems improve branding and
customer
short
long service
single good
(service)
SCOPE
Customer Relationship
Framework
DURATION
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