S U C C E S S F U L
ON
THE
INTERNET
A DISSERTATION
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF A
MASTERS IN BUSINESS ADMINISTRATION (MBA)
AT THE
UNIVERSITY OF CAMBRIDGE
ROBIN S. CLELAND
SEPTEMBER 2000
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
CONTENTS
SUBJECT
CHAPTER 1
1.1
1.2
1.3
1.4
2.9
3.4
3.5
3.6
3.7
6
7
9
9
11
THE NATURE OF BRANDS
Introduction
What is a Brand?
The Layers of a Brand
Product and Service Brands
Branding & the Buying Process
The Importance of Customer Satisfaction and Loyalty
Emotional Loyalty
The Concept of Brand Equity
2.8.1 The Value of Brands to Customers
2.8.2 The Value of Brands to Companies
Conclusion
CHAPTER 3
3.1
3.2
3.3
INTRODUCTION
Overview
Objectives
Methodology
Structure
CHAPTER 2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
PAGE
BUILDING BRANDS
Introduction
Overview of the Brand-Building Process
The Value Proposition
3.3.1 Added Value
3.3.2 Distinctive Brand Identity
Developing the Framework and Communicating the Value Proposition
Building Customer Relationships
Characteristics of Successful Brands
Conclusion
1
12
13
13
14
15
16
18
19
20
22
22
23
24
25
25
26
27
28
30
31
32
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
CHAPTER 4
4.1
4.2
4.3
4.4
4.5
4.6
33
Introduction
Overview of the Internet
4.2.1 The Defining Characteristics of the Internet
The Growth of the Internet
The Internet & e-Commerce
The Impact of the Internet on Business
Conclusion
CHAPTER 5
5.1
5.2
5.3
5.4
5.5
THE INTERNET
BUILDING BRANDS ON THE INTERNET
34
34
35
35
39
40
43
44
5.6
5.7
Introduction
The New Dynamics of Brands
The Importance of Customer Loyalty Online
Increasing Returns Economics and First-Mover Advantage
Viral Marketing
5.5.1 The Case of Hotmail.com
The Online Experience & The 7Cs Framework
The Interactive Brand-Building Model
45
45
47
48
50
51
52
57
5.8
5.9
Limitations of Brand-Building on the Internet
Conclusion
59
60
CHAPTER 6
6.1
6.2
6.3
CASE STUDIES
61
Introduction
Case Study: Amazon.com
6.2.1 Company Overview
6.2.2 Value Proposition
6.2.3 Sources of Value - The 7Cs Framework
6.2.4 Brand-Building Strategy
6.2.5 Other Factors that Contribute to their Brand Leadership
6.2.6 Conclusion
Case Study: BarnesandNoble.com
6.3.1 Company Overview
6.3.2 Value Proposition
6.3.3 Sources of Value - The 7Cs Framework
6.3.4 Brand-Building Strategy
6.3.5 Conclusion
2
62
62
62
62
64
66
69
70
71
71
72
72
73
75
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.4
6.5
6.6
6.7
6.8
Case Study: Boo.com
6.4.1 Company Overview
6.4.2 Value Proposition
6.4.3 Sources of Value - The Failure of Boo.com
6.4.4 Brand-Building Strategy
6.4.5 Conclusion
Case Study: CDnow
6.5.1 Company Overview
6.5.2 Value Proposition
6.5.3 Sources of Value - The 7Cs Framework
6.5.4 Brand-Building Strategy
6.5.5 Other Factors that Contribute to their Brand Leadership
6.5.6 Conclusion
Case Study: eBay
6.6.1 Company Overview
6.6.2 Value Proposition
6.6.3 Sources of Value - The 7Cs Framework
6.6.4 Brand-Building Strategy
6.6.5 Conclusion
Case Study: Gap.com
6.7.1 Company Overview
6.7.2 Value Proposition
6.7.3 Sources of Value - The 7Cs Framework
6.7.4 Brand-Building Strategy - Extensive Integration
6.7.5 Conclusion
Case Study: Yahoo!
6.8.1 Company Overview
6.8.2 Value Proposition
6.8.3 Sources of Value - The 7Cs Framework
6.8.4 Brand-Building Strategy
6.8.5 Other Factors That Contribute to their Brand Leadership
6.8.6 Conclusion
CHAPTER 7
7.1
7.2
CONCLUSION
105
Conclusion & Discussion of Key Findings
7.1.1 Key Factors that Contribute to Building a Successful Online Brand
Opportunities for Further Research
APPENDICES
Appendix A
Appendix B
76
76
76
77
78
79
80
80
80
81
83
84
85
86
86
86
87
91
92
93
93
93
94
96
97
98
98
98
99
102
104
104
106
107
110
111
Interbrand's Ranking of the Top 60 Brands
The Mckinsey 7S Framework
BIBLIOGRAPHY
112
113
114
3
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
LIST OF FIGURES
Figure 1.1
Figure 1.2
Figure 2.1
Figure 2.2
Figure 2.3
Figure 2.4
Figure 2.5
Figure 2.6
Figure 2.7
Figure 2.8
Figure 3.1
Figure 3.2
Figure 3.3
Figure 3.4
Figure 4.1
Figure 4.2
Figure 4.3
Figure 4.4
Figure 4.5
Figure 4.6
Figure 4.7
Figure 5.1
Figure 5.2
Figure 5.3
Figure 5.4
Figure 5.5
Figure 5.6
Figure 5.7
Figure 5.8
Figure 5.9
Figure 6.1
Figure 6.2
Figure 6.3
Figure 6.4
Figure 6.5
Figure 6.6
Figure 6.7
Figure 6.8
Figure 6.9
Years to Reach $100 million in Sales
Research Methodology
A Brand is More Than a Product or Service
Layers of a Brand
Five-Stage Model of the Buying Process
Steps Between Evaluation of Alternatives and a Purchase Decision
The Satisfaction-Loyalty Relationship
Creating Emotional Loyalty
Brand Progression
Brand Equity
Brand-Building Mechanism
Define the Value Proposition
Kapferer's Brand Identity Prism
The Innovation-Adoption Model
The Three Layers of the Internet
Growth in Internet Host Computers and Major Developments
Accelerated Rate of New Technology Acceptance
The Virtuous Growth Cycle of the Internet
What are People Doing Online?
World-wide Commerce on the Internet (1998-2003)
The Structure of an Online Company
The Network Effect
The Virtuous Spiral of Online Growth
The 7Cs Framework
Factors Affecting Web Brand Loyalty
The Community Hexagon
Customer Access to Information
The Interactive Brand-Building Model
Website Promotion Methods - Popularity & Effectiveness
Categories Suitable for Interactive Marketing
Overview of Amazon.com's Website
Amazon.com's Associates Programme
Overview of BarnesandNoble.com's Website
Overview of Boo.com's Website
Overview of CDnow's Website
Overview of eBay's Website
Overview of Gap's Website
Overview of Yahoo!'s Website
Overview of My Yahoo!
4
7
9
13
14
16
17
18
20
20
21
25
26
29
30
34
36
36
37
38
39
43
48
49
52
53
55
56
57
58
60
64
67
72
77
81
88
94
100
101
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
LIST OF TABLES
Table 5.1
Table 6.1
Table 6.2
The Emerging Brand-Building Environment
Amazon.com - Timeline and Major Milestones
BarnesandNoble.com - Timeline and Major Milestones
46
63
71
Table 6.3
Table 6.4
Table 6.5
Table 6.6
Table 6.7
Boo.com - Timeline and Major Milestones
CDnow - Timeline and Major Milestones
eBay - Timeline and Major Milestones
Gap.com - Timeline and Major Milestones
Yahoo! - Timeline and Major Milestones
76
80
87
93
99
5
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
CHAPTER 1
INTRODUCTION
6
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
1.1
OVERVIEW
Over the past few years, there has been an explosion in the online world - an explosion that is
also a harbinger of how business will operate in the future. Supply chains are being rethought, products and services reconfigured, and business models revamped. As such, the
Internet is having a profound impact on the way business is being conducted in ways that are
often disruptive to traditional methods1. This is creating new challenges and opportunities.
The Internet provides the opportunity for companies to reach a wider audience and create
compelling value propositions never before possible (e.g. Amazon.com's range of 4.5 million
book titles), while providing new tools for promotion, interaction and relationship building. It
is empowering customers with more options and more information to make informed
decisions. The Internet also represents a fundamental shift in how buyers and sellers interact,
as they face each other through an electronic connection, and its interactivity provides the
opportunity for brands to establish a dialogue with customers in a one-to-one setting. As
such, the Internet is changing fundamentals about customers, relationships, service and
brands, and is triggering the need for new brand-building strategies and tools.
In the midst of this, aggressive Internet start-ups have emerged, creating strong brands that
are putting established brands at risk. Internet companies such as Yahoo!, Amazon.com,
America Online (AOL) and eBay have been able to build powerful brands in a few years,
whereas it has taken decades for traditional companies to achieve the client base, customer
affiliation and level of sales, that these Internet start-ups have achieved. Figure 1.1 shows the
number of years it has taken some Internet brands to reach sales of $100 million.
FIGURE 1.1 - YEARS TO REACH $100 MILLION IN SALES
6
5.1
5
3.2
4
3.9
2.9
3.5
3
2.0
2
1.7
1
0
CDnow
DATE OF
INCEPTION
1
FEBRUARY
1994
Onsale.com1 Amazon.com
JULY
1994
JULY
1994
Cyberian
Outpost
eBay
MARCH
1995
SEPTEMBER
1995
Barnesand Priceline.com
noble.com
MARCH
1997
JULY
1997
Since merged with Egghead.com
Source: Securities and Exchange Commission Filings; McKinsey Analysis (www.mckinseyquarterly.com)
7
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
As a result, harnessing the reach and interactivity of the Internet to build and maintain brands
has become extremely important. For pure online players, who are essentially intangible,
brands are even more critical as customers have little to go on other than a recognised brand.
Given the tremendous clutter in today's e-commerce marketplace, and the high cost of
acquiring online customers2, the most successful sites will be those that can attract customers
and build brand loyalty and enthusiasm, that extends the brand-customer relationship beyond
a single transaction. A Business Week / Harris poll, found that 57% of Internet users go to
the same sites over and over again, rather than drifting from site to site3.
Therefore, building awareness, attracting traffic or 'eyeballs', turning browsers into buyers,
and turning first-time buyers into loyal repeat customers has become the Holy Grail of online
marketing strategies. However, as the need to build brand loyalty online is reaching a peak,
there is a growing recognition that traditional methods are no longer suited to this new
interactive environment.
As such, companies lack a coherent framework and concrete
methods to build an online brand. In light of this, this dissertation seeks to explore how
companies should go about building a successful Internet brand and to identify the critical
factors that must be considered.
1
2
3
Christensen, C., & Overdorf, M., 'Meeting the Challenge of Disruptive Change', Harvard Business Review, March - April
2000, Volume 78 Issue 2, pp. 66-76
Hoffman, D. L. and Novak, T. P., 'How to Acquire Customers on the Web', Harvard Business Review, May-June 2000
Hof, R., Browder, S., & Elstrom, P., 'Internet Communities - Forget Surfers. A New Class of Netizen is Settling Right In' Business Week, May 5, 1997, p.66
8
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
1.2
OBJECTIVES
The objectives of this dissertation are as follows:
•
To gain an understanding of the role of brands and how they have traditionally been built.
A review and analysis of leading academic thinking will be used to explore these issues.
•
To explore how the Internet is changing the brand-building environment, and to identify
new sources of value, tools and strategies to build brands on the Internet.
Academic literature and an analysis of the impacts of the Internet will be used to
investigate these factors, supported by secondary data related to aspects of online
business from accredited and published sources.
•
To identify the key factors and characteristics that contribute to the development of
successful Internet brands.
This is based on the outcome of the primary research (in-depth case studies), with
reference to the theoretical themes that emerge from the literature review and in terms of
the practical implications for companies.
1.3
METHODOLOGY
The methodology used in this dissertation is illustrated in Figure 1.2.
FIGURE 1.2 - RESEARCH METHODOLOGY
ACADEMIC RESEARCH
SECONDARY DATA
HYPOTHESIS
CASE STUDIES
The 7Cs Framework
& The Interactive
Brand-Building Process
Primary Data
9
CONCLUSION
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Academic Research: Given that the Internet is such a new area, there is more work in popular
rather than academic literature.
Consequently, the literature review draws on leading
academic thinking in more established areas such as brand management, relationship
management, marketing, strategy and economics. The absence of academic literature on
Internet branding posed a major obstacle, however, this also highlights the true value of the
dissertation. While there is no attempt, nor desire, to provide an in-depth analysis of the
psychological and social dimensions of brands, certain key factors are highlighted in their
relevance to the dissertation.
Secondary Data: This consists primarily of key facts and survey results quoted by leading
consultancy and research firms, and is used to provide insight into some of the factors that
contribute to the development of successful brands.
Hypothesis (Framework): This is based on the literature review and secondary data. The
resulting 7Cs Framework and Interactive Brand-Building Model outline key sources of added
value and the tools available for companies to create a high-impact customer experience that
is critical in building an online brand. These are further refined using the insight obtained
through the case studies.
Case Studies: The dissertation is essentially built on the in-depth analysis of the brandbuilding efforts of seven online companies.
The case studies include born-on-the-web
companies that are among the most recognised Internet Brands (Amazon.com, CDnow,
eBay and Yahoo!), traditional 'bricks-and-mortar' companies that rose to the challenge of
taking their brands to the Internet (Barnesandnoble.com and Gap.com), as well as a recent
Internet failure (Boo.com). The combination of cases provides a useful and practical insight
into brand-building issues and problems, and factors that contribute to a brand's success.
Conclusion: Discusses the key findings and areas for further research.
10
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
1.4
STRUCTURE
The next chapter, Chapter 2, provides an analysis of leading academic literature in relation
to branding, and introduces the core concepts that form the backbone of the dissertation. The
nature of brands, their purpose and value are discussed.
Chapter 3 explores how brands have traditionally been built, highlighting some key factors
that have contributed to brand success.
Chapter 4 provides an overview of the Internet and its defining characteristics, outlining the
key developments that have contributed to the Internet's explosive growth and accelerated
adoption.
This chapter sets the context within which online brands must be built, by
outlining the impact of the Internet on the business and competitive environment.
Chapter 5 explores new strategies and tools for building brands on the Internet (the 7Cs
Framework) and the importance of creating a positive end-to-end customer experience, as
well as the interactive approach to attracting customers and building loyalty. The limitations
of the Internet in terms of brand-building are also discussed.
Chapter 6 examines the brand-building efforts of seven companies. These case studies
provide a detailed and practical insight into how leading online brands have actually built
their brands.
The final chapter, Chapter 7, summarises the key findings, and outlines the opportunities for
further research.
11
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
CHAPTER 2
THE NATURE OF BRANDS
12
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
2.1
INTRODUCTION
Brands are made up of many layers and dimensions.
In this chapter, these layers are
unravelled to reveal the nature of brands and their reason for existence. The chapter proceeds
to describe the influence of brands on the buying process, and the importance of customer
satisfaction and brand loyalty. The concept of brand equity is outlined, explaining the value
of brands, both to customers, and to companies. These concepts are central to brands and
brand-building, whether online or offline, and they form the backbone of this dissertation.
2.2
WHAT IS A BRAND?
According to Rita Clifton, CEO of Interbrand Newell and Sorrell - a leading specialist brand
consultancy firm - a brand is:
"a mixture of tangible and intangible attributes, symbolised in a trademark,
which, if properly managed, creates influence and generates value4"
This definition truly captures the essence of a brand, and highlights the importance of brand
management. Branding is about creating 'value', both for customers, and for the company.
This value stems from the products and services that companies create and bring to the market,
but extends further to encompass added values derived from factors such as the brand-customer
relationship, the brand's emotional benefits and its self-expressive benefits - see Figure 2.1.
FIGURE 2.1 - A BRAND IS MORE THAN A PRODUCT OR SERVICE
BRAND
ORGANISATIONAL
BRAND
ASSOCIATIONS
PERSONALITY
COUNTRY
OF ORIGIN
USER
IMAGERY
PRODUCT
OR SERVICE
SCOPE
ATTRIBUTES
QUALITY
USES
SELF-EXPRESSIVE
BENEFITS
SYMBOLS
EMOTIONAL
BENEFITS
BRAND-CUSTOMER
RELATIONSHIPS
Source: Adapted from Aaker, D. A, 'Building Strong Brands', (New York: Free Press), 1996, p. 74
4
Clifton, R. & Maughan, E., 'The Future of Brands', (London: Macmillan Press Ltd.), 2000, p. vii
13
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Other common descriptions of a brand include - a 'relationship', a 'reputation', a 'set of
expectations', and a 'promise'. It is a company's promise to consistently deliver a specific set
of features, benefits, and services to customers.
Brands are richly endowed entities. They start life as ideas, making their way into planning
and strategy documents, yet ultimately reside as consumer perceptions. For some companies,
brands are their most valuable asset. The space a brand occupies inside a customer's head can
create a 'mental' patent, which grows out of the cumulative memory and the experiences
customers have of products or services. As such, brand-building is about creating value
through the provision of a compelling and consistent customer experience that satisfies
customers and keeps them coming back.
2.3
THE LAYERS OF A BRAND
Brands are made up of four layers - the core product or service, the basic brand, the
augmented brand and the potential brand - Figure 2.2.
FIGURE 2.2 - LAYERS OF A BRAND
POTENTIAL BRAND
AUGMENTED BRAND
BASIC BRAND
Name
Service
PRODUCT
OR SERVICE
Design
Quality
Credit
& Terms
Features
Packaging
Delivery
& Installation
Guarantees
Source: Adapted from Levitt, T., 'Marketing success through differentiation - of anything', Harvard Business
Review, January-February, 1980, p.86
14
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Product / Service
At the most basic level, customers buy products to meet certain functional needs. However,
most products and services cannot survive on functionality alone as this is usually matched in
time. The most common barrier to competition is building a brand.
The Basic Brand
The basic brand consists of the "name, term, sign, symbol, or design, or a combination of
them, intended to identify the goods and services of one seller or group of sellers and to
differentiate them from those of competitors"5. Essentially, this should support the offering's
performance and differentiate the brand from those of competitors.
The Augmented Brand
Successful companies seek a competitive edge through the enlargement of the core product or
service, with supplementary products and services (e.g. information, quick delivery) that
enhance the customer’s total purchasing and use experience. These products and services add
value and make the offering much more difficult for competitors to emulate.
The Potential Brand
A brand achieves its potential when added values are so great that customers will not
willingly accept substitutes, even when the alternatives are substantially cheaper or more
readily available (e.g. Coca-Cola, Kodak, Levi's).
2.4
PRODUCT AND SERVICE BRANDS
Product brands are the original brand carriers. They are the historical core of branding
because they are the most prevalent, and because they most readily come to mind when
consumers are asked to recall brands.
Service Brands (intangible) are much less numerous than their product counter parts.
Intangible services are also more challenging to "package" and sell to consumers who often
have difficulty conceptualising, preferring things they can see and touch. Certain service
brands, such as in retailing, actually sell products, but the brand itself is the store, not the
products it sells - The Gap stores, Southwest Airlines and Amazon.com are examples. In
fact, this is the case with all Internet companies, as they essentially perform the function of a
'virtual' intermediary or 'infomediary' and are intangible.
5
Kotler, P., 'Marketing Management - Analysis, Planning, Implementation, & Control', (Europe: Prentice Hall) 1996, 8th Ed.
15
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
2.5
BRANDING & THE BUYING PROCESS
In order to understand the context and the role of brands, it is important to clarify customers'
underlying buying behaviour and the buying process. The buying process consists of five
stages (Figure 2.3).
FIGURE 2.3 - FIVE-STAGE MODEL OF THE BUYING PROCESS
NEED
RECOGNITION
INFORMATION
SEARCH
EVALUATION
OF
ALTERNATIVES
PURCHASE
DECISION
POSTPURCHASE
BEHAVIOUR
Source: Kotler, P., 'Marketing Management - Analysis, Planning, Implementation, and Control', (Europe:
Prentice-Hall) 8th Ed., 1996, p.194
The process starts when the buyer recognises a need. This can be triggered by internal or
external stimuli (advertisements). Once aroused, a consumer will be inclined to search for
more information, either through heightened attention or through an active information
search. Through gathering information, the consumer learns about competing brands, and
evaluates them in terms of the degree to which their benefits and bundle of attributes satisfy
their needs. Consumers differ as to which product / service attributes they see as important,
and pay the most attention to the brands that will deliver the sought benefits. Therefore, it is
critical to understand what attributes consumers value.
Consumers develop a set of brand beliefs about the attributes of competing brands. These
brand beliefs make up the brand image (this concept is re-visited in Chapter 3). These beliefs
depend on their previous experiences with the brand, and the effect of selective perception,
selective distortion, and selective retention. In the evaluation stage, the consumer forms
preferences among brands and may form a purchase intention to buy the brand they prefer.
However, two factors can intervene between the purchase intention and the purchase decision
- attitudes of others and unexpected situational factors (Figure 2.4).
16
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 2.4
STEPS BETWEEN EVALUATION OF ALTERNATIVES AND A PURCHASE
DECISION
ATTITUDES
OF OTHERS
(WORD-OF-MOUTH)
EVALUATION
OF
ALTERNATIVES
PURCHASE
INTENTION
PURCHASE
DECISION
UNEXPECTED
SITUATIONAL
FACTORS
If other people have had a negative experience with the brand, their negative attitude may
influence the consumer's purchase intent or vice versa. A consumer's decision to modify,
postpone, or avoid a purchase decision is heavily influenced by perceived risk. Expensive
purchases involve some risk taking.
A consumer tries to deal with this by gathering
information from friends, and a preference for recognised brands they can trust.
After a consumer has actually purchased the product or service, they will evaluate their level
of satisfaction - the customer will be highly satisfied, somewhat satisfied, or dissatisfied with
the purchase decision.
Satisfaction depends on how closely the brand's perceived
performance matches the customer's expectations. If perceived performance and quality
exceed their expectations then they are satisfied, even delighted. If performance falls below
their expectations, they will be dissatisfied and look for alternative brands in the future.
Customers' expectations are particularly important when dealing with services, and especially
important when dealing with purchases made through the Internet, as these services are
intangible and therefore, customers make decisions purely on the basis of their expectations.
These expectations are formed through a combination of past experiences, word-of-mouth,
advertising and communication.
The level of customer satisfaction will influence whether they buy the brand again and talk
favourably or unfavourably about it to others. Highly satisfied and loyal customers tend to
move directly from the need recognition stage to the purchase decision, locking out potential
competitors. Customer satisfaction and loyalty are essential to creating successful brands.
17
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
2.6
THE IMPORTANCE OF CUSTOMER SATISFACTION AND LOYALTY
According to Thomas Jones and Earl Sasser (1995)6, customers at the lowest and highest
ends of the satisfaction scale tend to have intense feelings about a brand and its products /
services. The customers at the bottom end of the scale are "terrorists" - those who actively
attack the brand telling others not to buy from the company. At the opposite end of the
satisfaction spectrum are "apostles" - customers who are satisfied and loyal and talk
favourably about the brand - Figure 2.5.
FIGURE 2.5
THE SATISFACTION-LOYALTY RELATIONSHIP
& THE IMPACT OF COMPETITIVE ENVIRONMENT
HIGH
“HOSTAGES”
•
•
“APOSTLES”
LOYALTY
NON
COMPETITIVE
ZONE
HIGHLY
COMPETITIVE
ZONE
•
•
Regulated
Proprietary
technology
• Few substitutes
• High switching
costs
“TERRORISTS”
“MERCENARIES”
Commodity
Consumer
indifference
• Many
substitutes
• Low switching
costs
LOW
1
Completely
Dissatisfied
2
3
SATISFACTION
4
5
Completely
Satisfied
Source: Jones, T., & Sasser, E., 'Why Satisfied Customers Defect' - Harvard Business Review, Nov-Dec 1995, p. 91
Loyalty is derived when customers are continuously satisfied over time. This satisfaction
encompasses the whole experience and not just a company's products or services. Customers
that are passionately or emotionally loyal are those that have built trust in a company, and
believe that it will always act in their best interest. Trust is critical for a brand's success.
Some traditional companies identified as having established a strong trust relationship with
their customers include: Disney, Federal Express, Hewlett-Packard, Johnson & Johnson,
Saturn, Southwest Airlines and Xerox7.
6
7
Jones, T., & Sasser, E., 'Why Satisfied Customers Defect' - Harvard Business Review, Nov-Dec 1995
Hart, C. W. and Johnson, M. D., 'Growing the Trust Relationship', Marketing Management, Spring 1999
18
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Loyal customers are assets. The benefits of strong customer relationships are:
-
The average cost of acquiring a new customer is five times more than it costs to retain an
existing one8
-
Loyal customers tend to spend more
-
Regular customers tend to place frequent, consistent orders
-
Satisfied customers are the best advertisement - they provide good word-of-mouth and are
the best salespeople for the product / service
-
They are willing to pay premium prices to a supplier they know and trust
-
Gaining market entry or share becomes very difficult for competitors
-
It is easier to communicate with them on a regular basis
2.7
EMOTIONAL LOYALTY
Emotional loyalty can be brought about in two main ways. Firstly, emotional loyalty is born
out of a consumer's personal relationship with a brand. This relationship can actually start
through the satisfaction of a functional need or expressiveness (self-image) need. Consumers
cross the threshold from a mere brand relationship into emotional loyalty when they
"animate" the brand, giving quasi-human qualities and relate to it as they would to humans consider how Coke consumers felt betrayed when Coca-Cola decided to change their
formula in 1985.
Emotional loyalty can be also created through the formation of a strong user community
around the brand. The consumer reaches emotional loyalty when membership in the brand's
user community becomes an end in itself. In this way, the brand becomes a link for people
for whom fulfilling similar aspirations is a major life theme (e.g. Harley-Davidson
motorcycle clubs). There is also clear evidence of this on the Internet, with the emergence of
"community brands9" such as Geocities ('home' of more than 3 million community members
'living' in 41 'neighbourhoods') and FortuneCity.com.
Some established brands are
successfully developing online communities around them such as Disney and Pentax (where
professional and aspiring photographers can exchange tips and information on techniques and
equipment).
8
9
Peppers, D. & Rogers, M., 'The One to One Future', 1993
McWilliam, G., 'Building Stronger Brands through Online Communities' - Sloan Management Review, Spring 2000
19
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Emotional loyalty leads to a deeper, almost irreplaceable bond as well as potentially to the
negative feelings of betrayal. Emotionally loyal customers build a sense of trust and two-way
commitment with the brand, which goes well beyond the satisfaction of a specific need.
FIGURE 2.6 - CREATING EMOTIONAL LOYALTY
TRIGGERS
• Congruence with Life
Themes
PATHWAYS
THRESHOLDS
Personal
Relationship
with the Brand
Brand
Personification
• Accomplishment of
EMOTIONAL
LOYALTY
Life Projects
• Resolution of Current
Concerns
User
Community
Community as
an End in itself
Source: Fournier, S., 'Consumers and Their Brands: Developing Relationship Theory in Consumer Research',
Journal of Consumer Research, March 1998, pp. 343-373.
Satisfying customers and building loyalty (creating "apostles") is the ultimate objective
behind building a brand, and understanding the needs and buying processes of the target
market is essential.
2.8
THE CONCEPT OF BRAND EQUITY
Brands vary in the amount of power and value they have in the marketplace (Figure 2.7).
FIGURE 2.7 - BRAND PROGRESSION
UNKNOWN
BRAND
BRAND
AWARENESS
BRAND
ACCEPTABILITY
BRAND
PREFERENCE
BRAND
LOYALTY
At one extreme, there are brands that are unknown by most buyers. Some brands have a
fairly high degree of brand awareness (measured by brand recall and recognition). Beyond
this, there are brands that customers perceive as acceptable and would not resist buying. A
stronger brand enjoys a high degree of brand preference over competing brands. However, a
'powerbrand' tends to have a high degree of brand loyalty, whereby customers would be
unwilling to substitute it with competitors' offers.
20
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
A strong brand is said to have high brand equity, which is the value of the brand over and
above its commodity value. According to David Aaker (1991), brand equity "is a set of
assets (and liabilities) linked to a brand's name and symbol that adds to (or subtracts from)
the value provided by a product or service10".
The major brand assets are brand loyalty, name awareness, perceived quality, strong brand
associations, and other assets such as patents, trademarks, and relationships with distributors
and strategic partners. The benefits of each are outlined in Figure 2.8.
FIGURE 2.8 - BRAND EQUITY
BRAND
LOYALTY
•
•
•
•
BRAND
AWARENESS
•
•
Anchor to which other
associations can be
attached
Familiarity / Liking
Signal of Substance /
commitment
Brand to be considered
•
•
•
•
•
Reason-to-Buy
Differentiate / Position
Price
Channel Member
Extensions
•
•
Help Process / Retrieve
Information
Reason-to-Buy
Create Positive Attitude /
Feelings
Extensions
•
Competitive Advantage
•
•
BRAND
EQUITY
PERCEIVED
QUALITY
BRAND
ASSOCIATIONS
OTHER
PROPRIETARY
BRAND ASSETS
Reduced Marketing Costs
Trade Leverage
Attracting New
Customers
- Create Awareness
- Reassurance
Time to Respond to
Competitive Threats
•
•
Provides Value to
Customer by
Enhancing Customer's:
• Interpretation /
processing of
information
• Confidence & Trust
in the purchase
decision
• Use satisfaction
Provides Value to Firm
by Enhancing:
• Efficiency and
effectiveness of
marketing programs
• Brand loyalty
• Prices / margins
• Brand extensions
• Trade leverage
• Competitive
advantage
Source: Aaker, D., 'Managing Brand Equity: Capitalising on the Value of a Brand Name', (New York: Free Press), 1991
10
Aaker, D., 'Managing Brand Equity: Capitalising on the Value of a Brand Name', (New York: Free Press), 1991
21
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
2.8.1
THE VALUE OF BRANDS TO CUSTOMERS
According to Jean-Noel Kapferer (1992)11, brands perform several functions that add value
and customer benefits:
•
Identification - To be clearly seen, to make sense of the offer, to quickly identify sought
after products
•
Practicality - To save time and energy through identical repurchasing and loyalty
•
Guarantee - To be sure of finding the same quality no matter where or when you buy the
product or service
•
Optimisation - To be sure of buying the best product in the category, the best performer
for a particular purpose
•
Characterisation - To have confirmation of your self-image or the image that you
present to others
•
Continuity - Satisfaction brought about through familiarity and intimacy with the brand
that you have been consuming for years
•
Hedonistic - Satisfaction linked to the attractiveness of the brand, to its logo, to its
communication
•
Ethical - Satisfaction linked to the responsible behaviour of the brand in its relationship
with society
2.8.2
THE VALUE OF BRANDS TO COMPANIES
Brands create value for companies, in the following ways:
•
Brands, market share and profits - Typically a brand leader obtains twice the market
share of the number two brand, and the number two twice the share of the number three12.
The brand leader is the most profitable and all beyond number two are unprofitable13.
•
Brand Leverage - The brand leader benefits from two main leverage effects: Higher
volume leads to economies of scale in development, production and marketing; Premium
pricing increases revenue.
11
Kapferer, J., 'Strategic Brand Management', (New York: Free Press), 1992
Worcester, R. & Downham, J., 'Consumer Market Research Handbook', (London: McGraw Hill), 3rd Ed., 1986
13
Golder, P. N., & Tellis, G., 'Pioneer Advantage: Marketing Logic or Marketing Legend?', Journal of Marketing
Research, May 1993, pp. 158-170.
12
22
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
•
The Value of Niche Brands - Dominating a niche market is usually more profitable than
being fifth in a large market.
•
Brand Loyalty and Beliefs - Strong brands are more attractive to investors. Brand
loyalty also reduces marketing costs and enables firms to override occasional problems
(e.g. Johnson & Johnson with Tylenol).
•
The Brand Barrier - Brand leaders usually have the financial strength to fend off
competitors. Potential competitors are usually reluctant to enter the market if existing
brands satisfy customers. In addition, brand leaders can exploit their superiority in the
market (e.g. Coca-Cola “the real thing”).
•
Avenues for Growth - The product life cycle applies to products, not brands. Companies
can maintain a brand while modifying the underlying product to account for new
technology, fashion or prevailing market conditions. The brand can also be used to
penetrate new markets.
•
Motivating Stakeholders - Companies with strong brands attract good recruits. They
also tend to elicit community and government support.
In trying to estimate the monetary value of brands, companies such as Interbrand (see
Appendix A), and Young & Rubicam have created complex formulas, but there remains an
ongoing controversy about how accurate and meaningful these measures are.
2.9
CONCLUSION
Branding is essentially about creating value through the provision of a compelling and
consistent offering and customer experience that will satisfy customers and keep them
coming back. When a company creates this type of customer preference and loyalty, it can
build a strong market share, maintain good price levels and generate strong cash flows. This,
in turn, drives up share price and provides the basis for future growth.
The next chapter describes the process of how brands are built, the tools that are used, and the
characteristics of successful brands.
23
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
CHAPTER 3
BUILDING BRANDS
24
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
3.1
INTRODUCTION
Building a strong brand is a complex task. This chapter spells out the traditional brandbuilding process, highlighting important factors that contribute to the success of each step
along the way. The major characteristics of successful brands are also reviewed.
3.2
OVERVIEW OF THE BRAND-BUILDING PROCESS
The brand building process starts with the development of a strong value proposition. Once
this has been established, the next step is to get customers to try the brand. If the offering is
developed properly, it should provide a satisfactory experience and lead to a willingness to
buy again. To entice trial and repeat purchase requires triggering mechanisms, which are
created through advertising, promotion, selling, public relations, and direct marketing. The
company needs to communicate the values of the brand and then reinforce brand associations
to start the wheel of usage and experience, and keep it turning. Through the combination of
the stimulus of consistent communications and satisfactory usage and experience, brand
awareness, confidence and brand equity are built. This is illustrated in Figure 3.1.
FIGURE 3.1 - BRAND BUILDING MECHANISM
PRESENTATIONS
DISPLAY
ADVERTISING
BRAND
EQUITY
SELLING
PR
PROMOTION
POTENTIAL
BRAND
TRIAL
LOYALTY
PRODUCT/
PRODUCT
OR
SERVICE
SERVICE
DIFFERENTIATION
ADDED
VALUE
SATISFIED
CUSTOMERS
25
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
3.3
THE VALUE PROPOSITION
Brand-building starts with a clearly defined value proposition - a strong offer that a potential
customer would find compelling and interesting. In order to do this, a company must develop
a strong understanding of who their potential customers are, what they value and how the
products or services should be optimised or configured to deliver this value (Figure 3.2). The
value proposition must be continuously re-evaluated to respond to changes in the marketplace.
FIGURE 3.2 - DEFINE THE VALUE PROPOSITION
Who is your
customer?
What is the
optimal product or
service offering
that delivers this
value?
What does your
customer value?
Central to this value proposition, a brand must deliver a quality product or service that meets
the functional needs of customers and differentiates itself from competitors. It should seek to
augment its basic appeal with added value through the provision of additional products or
services to delight customers. In this way, the brand can elicit feelings of confidence that it is
of higher quality than competitors'. As such, a compelling value proposition is the combination
of an effective product or service (P), a distinctive brand identity (I), and added value (AV).
BRAND = P
X
I
X
AV
These three characteristics are multiplicative rather than additive - each is essential. Without
a good product or service, it is impossible to build a successful brand. Similarly, unless
differentiation and awareness can be developed, it will never attract a strong client base.
26
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
3.3.1
Added Value
Added value is at the heart of building successful brands.
Most buying decisions are
influenced by brand values, which are additional to those based upon real performance. The
large number of decisions, the pace of technical change, the number of competing
alternatives and the large variety of advertising and selling messages, mean that buyers look
for short cuts.
Reputable brand names provide confidence and allow customers to cut
through the risks and complexity of choice.
Added values also occur when brands are bought for emotional reasons to satisfy other needs
besides functional needs. People use brands to express their lifestyles, interests, values or
wealth. Customers choose brands, which they perceive as meeting their needs. In today's
affluent society, these needs are as likely to be about satisfying self-actualisation or esteem
needs, or to gain a sense of belonging, as they are to be about satisfying basic physical and
economic needs14. Brand values derive from five major sources15:
•
Experience of Use - if a brand provides good service over time, it acquires added values
of familiarity and proven reliability.
•
User Associations - brands frequently acquire an image from the type of people who are
seen as using them. Advertising and sponsorship are often used to convey images of
prestige or success by associating the brand with glamorous personalities.
•
Belief in Efficacy - in many cases, if customers have faith that a brand will work, it is
more likely to work effectively for them. For pharmaceuticals, cosmetics and high-tech
products, faith in brand generates satisfaction in use. Beliefs in efficacy can be created by
comparative evaluations and rankings from consumer associations, industry endorsements
and newspaper editorials.
•
Brand Appearance - the design, layout and appearance of the brand can clearly affect
preference by offering cues to quality.
•
Manufacturers' Name and Reputation - In many situations a strong company name (e.g.
Coca-Cola, Gillette, Sony, Hewlett-Packard, Kellogg's) attached to a new product will
transfer positive associations, providing confidence and incentive to trial.
14
15
Doyle, P., 'Marketing Management and Strategy', 2nd Ed. (Europe: Prentice-Hall), 1998, pp. 169
Jones, J. P., 'What's in a Name? Advertising and the Concept of Brands' (Lexington, MA, Lexington Books), 1986
27
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
3.3.2
Distinctive Brand Identity
A brand identity is the message sent out by the brand through its name, features, visual
appearance, and advertising. This may be different from the brand image, which depends on
how the target market perceives the brand. A company should seek to differentiate its brand
through developing a distinctive identity. Jean-Noël Kapferer (1992) identified three levels
of a brand identity16 - Figure 3.3:
•
The Brand Core - the fundamental or genetic code of the brand, which remains fixed
over time.
•
The Brand Style - articulates the brand core in terms of the culture it conveys, its
personality and its image or self-projection .
•
The Brand Theme - the way the brand communicates through its advertising, press
releases, packaging, etc. Themes include the physical appearance (logo, colour scheme,
and visual appearance), its reflection (e.g. type of spokesperson / customer image used to
advertise the brand), and the relationship expressed (e.g. glamour, prestige, friendly).
Brand themes are the most flexible element and will tend to change with fashion, style or
cultural differences from one country to another, however the brand style and core tend to be
less flexible.
16
Kapferer, J., 'Strategic Brand Management', (New York: The Free Press), 1992
28
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 3.3 - KAPFERER'S BRAND IDENTITY PRISM
PICTURE OF SENDER
RELATIONSHIP
PERSONALITY
BRAND
CORE
CULTURE
INTERNALISATION
EXTERNALISATION
PHYSICAL
SELF-IMAGE
REFLECTION
BRAND STYLE
BRAND THEMES
PICTURE OF RECIPIENT
Physical
The physical qualities and features of the product or service
Personality
The character of the brand and how it speaks of its products / services
Culture
The set of values feeding the brand's inspiration and energy
Relationship
The intangible exchange between the brand and the customer
Reflection
The image of the buyer or user the brand seems to be portraying
Self-Image
What the brand says about the user (in the user's mind)
Source: Adapted from Kapferer, J., 'Strategic Brand Management', (New York: Free Press), 1992
The brand prism enables management to understand the brand, its strengths and
opportunities. Secondly, it helps in developing the brand strategy and the formulation of a
distinctive positioning in the market. It also facilitates consistency in the message being
transmitted through presentation (e.g. website design, structure and ease of use), advertising,
below-the-line activities, and through line and brand extensions. Finally, understanding the
brand's core and style helps set the perimeters of brand extensions - how far the brand can be
meaningfully stretched to other products and market segments.
29
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
3.4
DEVELOPING THE FRAMEWORK & COMMUNICATING THE VALUE PROPOSITION
Once the value proposition is clearly defined, the company must ensure that it develops the
appropriate structure, systems, strategy (partnerships and alliances), skills, management style,
culture and staff needed to support, deliver and reinforce this value proposition (see
Appendix B - The McKinsey 7-S Framework). The value proposition must then be articulated
in terms of the 'marketing mix' - often referred to as the '4Ps' - Product and service features,
Price, Promotion and Place (distribution strategy).
The value proposition must be communicated to entice customers to try the product / service.
If the offering is developed properly, it should lead to satisfaction and re-purchase. Before
potential customers can buy a product / service, they must learn about it. This learning is
called the adoption process17 - Figure 3.4.
FIGURE 3.4 - INNOVATION-ADOPTION MODEL
AWARENESS
INTEREST
EVALUATION
TRIAL
ADOPTION
Source: Rogers, E., 'Diffusion of Innovations', (New York: Free Press), 1962, pp.79-86
The Innovation-Adoption Model consists of:
•
Awareness - The company has to create awareness of the brand, and its products /
services. Advertising and PR are common tools for achieving awareness.
•
Interest - Customers need to be stimulated to seek information about the brand's uses,
features and advantages.
•
Evaluation - Customers consider whether the product / service will meet their particular
needs. Personal sources such as word-of-mouth from friends, colleagues and opinion
leaders become important influences at this stage.
•
Trial - The customer tries the product / service for the first time and decides whether to
adopt it based on their expectations, and the product / service's perceived performance.
•
Adoption - The customer is satisfied and decides to make regular use of the product /
service.
17
Rogers, E., 'Diffusion of Innovations', (New York: Free Press), 1962, pp.79-86
30
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Traditionally, companies have used the tools of the promotions mix - advertising, direct
marketing, sales promotion, personal selling and public relations / publicity - to move
customers through the adoption process. Advertising and public relations can be effective in
generating awareness and interest.
Sales promotions and sampling are often used for
encouraging evaluation and trial.
It is beneficial for companies to accelerate the adoption process before competitors emulate
the benefits they offer. Enticing customers to purchase again and adopt the brand not only
requires a successful trial experience, but enhanced customer interaction through relationship
building.
3.5
BUILDING CUSTOMER RELATIONSHIPS
Building relationships with customers extends beyond a single transaction. This is often
referred to as Customer Relationship Management (CRM). This focuses on establishing a longterm, multi-transaction relationship, when each trusts the other to deal fairly and reliably.
Over time, this process enables an exchange of information, providing insight into customers'
needs and wants. This information is a key competitive advantage, allowing companies to
communicate regularly with their customers and customise their interaction. In this way,
companies can increase buyers' satisfaction, making them less likely to switch to a
competitor.
Customer service is an important element of this relationship.
Berry and
Parasuraman (1991) identified three customer relationship-building approaches18:
•
Financial Benefits - such as airline frequent flyer programmes, & loyalty / discount cards.
•
Social Benefits - by learning customers' individual needs and wants and individualising
and customising service and contact with the customer.
•
Structural Ties - for example, the company may supply customers with special equipment
or tools (e.g. Internet linkages, software) to help customers interact with the company.
Through building relationships with customers, companies can increase the value of each
customer, while strengthening the position and value of the brand.
18
Berry, L. & Parasuraman, A., 'Marketing Services: Competing Through Quality', (New York: Free Press),
1991, pp.136-142
31
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
3.6
CHARACTERISTICS OF SUCCESSFUL BRANDS
Several factors contributing to the success of brands have been identified19, including:
•
A Quality Product / Service Experience - Satisfactory experience is the major
determinant of brand values. If the quality of the experience deteriorates, or if the brand
is surpassed by superior offers from competitors, then its position will be undermined.
•
First-Mover Advantage - Being first into the market does not necessarily bring success,
but it makes the task easier. It is easier to capture a share of the consumer's mind and
build a customer base, when the brand has no competitors to rival its position.
•
Unique Positioning Concept - If the brand is not the innovator, it must have a unique
positioning concept - a segmentation scheme, value proposition or augmented brand,
which will add value and distinguish it from competition.
•
Strong Communications Programme - A successful brand requires an effective selling,
advertising or promotional campaign, which will communicate the brand's existence, its
function and psychological values, trigger trial and reinforce commitment to it. Without
building awareness, comprehension and intention to buy, the brand is meaningless.
•
Time and Consistency - Traditionally, brands were not built quickly. It often takes years
to build up the added values, and establish a trusting relationship.
3.7
CONCLUSION
Building strong brands stems from the creation of a compelling value proposition. Once the
framework has been established and the organisation configured to provide this proposition,
companies must actively communicate it to the target audience to entice trial. As customers
build trust in the brand through satisfaction of use and experience, companies have the
opportunity to start building relationships with their customers, strengthening the brand
further, and making it more difficult for competitors to emulate. The Internet provides the
opportunity for companies to create compelling value propositions never before possible,
while providing new tools for promotion, interaction and relationship building. As a result, it
has a profound impact on the traditional brand-building process. As such, the next chapter
explores the characteristics of the Internet and its impact on the business and competitive
environment.
19
Doyle, P., 'Marketing Management & Strategy', (Europe: Prentice-Hall), 1998, 2nd Ed., pp.176-177
32
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
CHAPTER 4
THE INTERNET
33
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
4.1
INTRODUCTION
The Internet is transforming the business environment, creating new challenges and
opportunities.
This chapter provides an overview of the Internet and its defining
characteristics, highlighting the key developments that have contributed to its explosive
growth and its impact on the business environment.
4.2
OVERVIEW OF THE INTERNET
The Internet is a world-wide network of networks. In essence, it is a common technology
platform that allows computing devices to communicate with each other. In doing so, it
offers a number of alternative channels that enable businesses and people to communicate.
The three core channels include e-mail (the most common), news groups and mailing lists,
and the 'world wide web' (www) - Figure 4.1.
FIGURE 4.1 - THE THREE LEVELS OF THE INTERNET
NEWS GROUPS
& MAILING LISTS
Allow users to communicate
with each other, but in practice
not in real time.
E-MAIL
Is the part of the Internet
that most users use at
present. The system
works as an electronic
mailing system and can
be used as a real time
medium
WWW AND CHAT ROOMS
Are used by more and more people, and provide the
opportunity for the creation of Interactivity
The world wide web (www) is a large network of documents, which contain hypertext and
pictures, and provides the opportunity for dynamic interaction. Hypertext allows information
to be organised in a user-friendly way that is easily accessible. Information is becoming a
major part of the products and services that people buy, and a critical source of added value.
34
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
4.2.1 The Defining Characteristics of the Internet
The distinctive characteristics of the Internet can be summarised in three key points:
•
It Dramatically Reduces Information Costs - the cost of searching for information and the
cost of the information itself is significantly reduced (and in many cases is free).
•
It Allows for Two-way Communication and Interactivity - this radically alters the process
of interaction between communicating parties, allowing both parties to identify each other
and build one-to-one relationships - not previously available with mass medium forms of
communication.
•
It Overcomes the Barriers of Time and Space - The Internet is a global network and can
be reached from everywhere, regardless of where the computer or Internet access device
is physically located. The Internet can also be accessed at any time - 24 hours a day, 7
days a week. These qualities eliminate the barriers of time and space that exist in the
physical world.
These characteristics combine to create a very powerful medium. By allowing for direct,
ubiquitous links to anyone, anywhere, the Internet lets individuals and companies build
interactive relationships with customers and suppliers, and deliver new products and services
at low cost. These defining characteristics have fuelled its explosive growth.
4.3
THE GROWTH OF THE INTERNET
The origins of the Internet date back to 1969, when the United States Defence Department
developed the 'ARPAnet', which was intended to link military networks together.
The
context of the Internet and certain key developments are highlighted in the Figure 4.2 (Note:
Graph is not drawn to scale).
35
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 4.2 - GROWTH IN INTERNET HOST COMPUTERS AND MAJOR DEVELOPMENTS
1995:
Dell, Cisco and Amazon begin to aggressively
use Internet for commercial transactions
100,000,000
1993:
10,000,000
Mosaic browser invented at
University of Illinois is released to public
1,000,000
1989:
1994:
WWW HTML
Language invented
100,000
Netscape releases
Navigator browser
1991:
National Science Foundation
(NSF) lifts restrictions on
commercial use of Internet
1969:
10,000
Internet / ARPAnet
was created
1,000
100
'82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Source: Network Wizards, 1998, as cited in 'E-Business Technology Forecast' - a PricewaterhouseCoopers Report, 2000
The growth of personal computing technology in the 1980s, largely contributed to the
accelerated adoption of the Internet and the world-wide web (www) which far outstrips that
of previous technologies - Figure 4.3.
FIGURE 4.3 - ACCELERATED RATE OF NEW TECHNOLOGY ACCEPTANCE
YEARS TO REACH 10 MILLION CUSTOMERS
www
2
PC
7
VCR
9
Fax
22
Cable TV
25
41
Pager
0
5
10
15
20
Source: The Economist, 1996 (www.economist.com)
36
25
30
35
40
45
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
The number of Internet users is constantly increasing and by end-2000, there will be an
estimated 375 million Internet users world-wide, increasing to 500 million users by 200220.
This boom has been the result of several underlying forces that have come together:
-
The wider availability of the Internet, offering inexpensive bandwidth.
-
Easier access to these networks provided by point-and-click web browsers.
-
Multimedia development tools that can be used to create rich content.
-
The emergence of open standards in development tools and at the network protocol
level (e.g. TCP/IP), making it more cost effective for software developers and other
technology providers to create interoperable products.
-
The growth in support services (e.g. web design, hosting, and gateway services).
-
The development of critical processes (ordering, billing, payment, etc.).
The most important factor has been that users are becoming accustomed to the Internet and
are rapidly overcoming any inhibitions concerning e-commerce. As shown in Figure 4.4, the
momentum created by all these forces has created a virtuous cycle of growth.
FIGURE 4.4 - THE VIRTUOUS GROWTH CYCLE OF THE INTERNET
INFRASTRUCTURE
DEVELOPS
COMMUNITIES OF
INTEREST
PROLIFERATE
- Low-cost networking alternatives
- High-powered servers
- Attractive infrastructure and
middleware software
- Cheap bandwidth
- Momentum toward open standards
COMPUTING
SERVICES
BECOME MORE
WIDESPREAD
- E-Marketplaces
- Content Aggregators
- Consumer Aggregators
TECHNOLOGY
AND SERVICE
PROVIDERS
MULTIPLY
-
- Cheap microprocessors & RAM
- Higher PC penetration among
consumers and companies
- New generation of PDAs and
Internet appliances
Web site designers
Outsourced networks
Web hosts
Ancillary services
Source: Harrington, L., Reed, G., 'Electronic Commerce (finally) Comes of Age', The McKinsey Quarterly, 1996, No.2
20
'World Online Populations' - CyberAtlas Internet Statistics and Market Research, 2000 (http://cyberatlas.internet.com)
37
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
A recent study by the Stanford Institute for the Quantitative Study of Society (2000), reveals
the wide range of areas where people are embracing the Internet - from communicating (90%
use e-mail) and sourcing information, to interacting (e.g. chat rooms, entertainment) and
purchasing (37%) - Figure 4.5. These activities highlight the adoption of the Internet as an
interactive, communication and information tool.
FIGURE 4.5 - WHAT ARE PEOPLE DOING ONLINE?
E-mail
General Info
Surfing
Reading
Hobbies
Product Info
Travel Info
Work / Business
Entertainment
Purchasing
Stock Quotes
Job Search
Chat Rooms
Homework
Auctions
Banking
Trading Stocks
0%
20%
40%
60%
80%
100%
Source: Stanford Institute for the Quantitative Study of Society, as cited in the Economist Intelligence Unit
(EIU), April 13, 2000 (www.eiu.com)
38
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
4.4
THE INTERNET AND E-COMMERCE
E-commerce describes the use of the Internet as a medium and as a market for commerce.
The main difference between the Internet and other electronic media (i.e. fax, telephone) is
that the Internet goes beyond just enabling transactions.
The Internet becomes an
information-rich 'virtual' market space through which buyers and sellers interact. These
'virtual' marketplaces are not fixed in physical territory but are created by the combination of
standards-based networks, web browsers, software, content, and people.
Conducting
business over the Internet ('e-business') represents a fundamental shift in how buyers and
sellers interact. The buyer and seller 'face' each other through an electronic connection.
There is no need to travel to a physical location, no order book, and no cash register. Instead
there is a website.
The value of e-commerce transactions and market forecasts vary widely among research
firms and government agencies. However, they all project the value e-commerce transactions
to grow at unprecedented rates.
Figure 4.6 outlines the growth in the value of online
Business-to-Business commerce (B2B) and Business-to-Consumer (B2C) transactions, as
projected by Gartner Group.
FIGURE 4.6 - WORLD-WIDE COMMERCE ON THE INTERNET (1998-2003)
5000
B2C
B2B
4500
4000
Billions US$
3500
3000
2500
2000
1500
1000
500
0
1998
1999
2000
2001
Year
Source: Gartner Group, April 2000
39
2002
2003
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
4.5
THE IMPACT OF THE INTERNET ON BUSINESS
The Internet has had a profound impact on the way business is being conducted - how
companies operate, how they compete and how they serve their customers - and revolutionary
new business models are emerging, which are often disruptive to traditional business
models21.
Although the particular impact will differ between industries, a number of
sweeping impacts are identifiable:
The Development of Electronic Intermediation
The Internet is enabling companies to break through organisational and geographic
boundaries to create new structures that link businesses 'virtually' (electronically) with
customers, suppliers, partners and other corporate constituencies. By allowing customers to
talk knowledgeably and directly to suppliers, the Internet is sidelining the role of many
traditional intermediaries, and transforming traditional distribution channels.
This is
threatening to undermine many old established brands. At the same time, the explosion of
information is placing a premium on skilled information management. New brands and
business models are emerging to seize this opportunity, some of which look set to become the
superbrands of the future (e.g. Yahoo!).
Improved Core Business Processes
The use of Internet-based technologies as the platform over which the organisation’s
processes flow, represents a level of efficiency and integration previously unattainable. For
example, CISCO e-enabled its financial systems and now has the capability to close its
financial year within one day.
Additionally, the Internet provides the opportunity for
companies to integrate with their suppliers and customers in real-time and create previously
unachievable synergies at a very low cost.
Improved business processes and 'virtual
integration' have allowed companies to move from 'make-to-sell' to 'make-to-order' modes of
operation (e.g. Dell Computers).
Globalisation of Business
The Internet facilitates the globalisation of business by providing access to a global audience.
A 'virtual' presence can mitigate the cost of having to invest in physical facilities. The
Internet also facilitates the development and co-ordination of global activities (e.g. through
the use of extranets).
21
Christensen, C., & Overdorf, M., 'Meeting the Challenge of Disruptive Change', Harvard Business Review,
March - April 2000, Volume 78 Issue 2, pp. 66-76
40
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
The Balance of Power is Shifting to the Customer
The Internet empowers customers, as they have access to more information leading to more
informed decision-making. It also provides easy access to competitors' offers and allows
customers to consider every available alternative. As a result, switching costs are much
lower.
According to George Colony, CEO of Forrester Research22, these new highly
informed customers are "empowered fruit flies", with no time, little loyalty, quick evolution
and all the power. They can move from one supplier to another searching for the best prices,
highest convenience and quickest satisfaction.
Customers have more options than ever
before - they can choose between traditional 'bricks-and-mortar' companies, online stores, or
catalogues. This is forcing companies to become flexible and responsive to customer needs,
ensuring the delivery of a satisfying customer experience.
Competition is Intensifying
Although the Internet removes the geographical constraints of reaching customers, it also
removes the geographical protection from competitors, as they are just one 'click' away. This,
combined with the emergence of electronic intermediaries, the diminishing barriers-to-entry
and the lower switching costs, has resulted in a fierce competitive environment.
Knowledge is Becoming a Key Strategic Asset
Many companies have recognised that if they want to succeed, their organisations must
harness knowledge - internally and externally - in developing products, improving processes,
getting closer to customers and ultimately staying ahead of competitors. Internet technology
can be used to exploit collective learning and knowledge, allowing employees to share
knowledge, collaborate more effectively and ultimately embed organisational intelligence
within processes, products and services.
The Pace of Business is Accelerating
With the fast pace of technological change, the globalisation of business, fierce competition,
empowered customers, the development of a knowledge economy, and the 24 x 7
environment, the typical clock-speed at which companies need to operate has accelerated.
Now companies need to move at warp-speed, to capture new opportunities, commit and
deploy resources, constantly innovate, respond to competitive and market dynamics, and
reorganise as appropriate.
22
Colony, G., 'Empowered Fruit Flies' - Forrester Research, 2000 (www.forrester.com)
41
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Revolutionising Sales and Brand Management
The Internet provides companies with a new channel to reach a new breed of customer.
Enhanced communication capabilities allow companies to build one-to-one relationships with
their customers and suppliers that were previously impossible.
It allows companies to
improve customer service, achieve global reach and realise a new source of cost advantage.
As such, it provides the opportunity to reach customers where they want, when they want,
how they want and with the levels of customer service they demand.
New Ways of Organising and Structuring Business
Transformed communications costs and capabilities are helping to drive a fundamental
rethink of how firms should organise themselves. Examples of emerging information age
business structures include flat versus hierarchical, extensive outsourcing, supply chain cooperation, and multiple strategic alliances and partnerships. The opportunity of linking the
complete supply chain 'virtually', combined with intense competitive pressures, and the need
for speed and flexibility have accelerated the unbundling of business systems. Increasingly,
companies are focusing on the part of the value chain that is most valued by customers or
where their company has a core competence, and partnering up with the best for the
remaining activities. In this way, companies can provide customers with a strong value
proposition by offering them the best in quality, variety, information, advice and
convenience.
The Strategic Importance of Alliances and Partnerships
Although this point has already been touched upon, alliances and partnerships have taken on
a new level of strategic importance. Traditionally, companies have looked upon alliances
only as a means of filling gaps, and most traditional partnerships were vertical, linking
companies with suppliers and customers up and down a pre-defined value chain. However,
most Internet and e-commerce partnerships extend beyond this, linking companies with
competitors and players from entirely different industries and business sectors, thus creating a
'value net23'. The extent of this partnering is illustrated in Figure 4.7, which highlights the
typical structure and dynamics of an online company.
23
'The Future of E-Business' - A Research Report by TeslaGroup, 1999 - (www.teslagroup.com)
42
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 4.7 - THE STRUCTURE OF AN ONLINE COMPANY
SUPPLIER
CUSTOMER
SUPPLIER
PORTALS
FULFILMENT
AND
DISTRIBUTION
PARTNERS
SPECIALTY
SUPPLIER
SPECIALTY
SUPPLIER
CUSTOMER
STRATEGIC
MARKETING
ALLIANCES
www.dot.com
CONTENT
PARTNERS
• Print Media
• Broadcast
• Online
JOINT
VENTURE
PARTNERSHIP
CUSTOMER
AFFILIATE
PROGRAMME
CUSTOMER
OUTSOURCING /
TECH PARTNERS
BACK OFFICE
FRONT OFFICE
•
•
•
•
OFFLINE
PRESENCE
Customer Services
Creative
Site Development
Hosting
CUSTOMER
Source: Adapted from Freeland, D. G., & Stirton, S. 'Organising for e-Commerce' - a Boston Consulting Group
(BCG) Analysis, April 2000
In an attempt to provide a rich customer experience, many online companies are blending
together the products and services of a wide range of companies. This provides customers
with added value, while making the offering hard to duplicate off-line. Partnering with
portals and affiliate web sites is important in driving traffic to a web site. Rapid and
extensive partnering is also an effective way to achieve the first-mover advantage that can
prove essential towards establishing a competitive advantage.
4.6
CONCLUSION
The Internet and its strategic impact are not technological issues - they are business issues.
The Internet is transforming every business to some degree. New opportunities for efficiency
and co-ordination are emerging, competition is intensifying, the pace of business is
accelerating and power is shifting to the customer. As such, it is transforming the competitive
landscape and brand-building environment, while triggering the emergence of new brandbuilding strategies, tools and opportunities. This is the substance of the next chapter.
43
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
CHAPTER 5
BUILDING BRANDS
ON THE INTERNET
44
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
5.1
INTRODUCTION
The Internet is changing the brand environment or 'brandscape'. This chapter explores the
new dynamics of brands and the critical importance of customer loyalty online.
New
strategies and tools for building brands on the Internet are identified, including the interactive
approach to attracting customers and building loyalty. The limitations of brand-building on
the Internet are also discussed.
5.2
THE NEW DYNAMICS OF BRANDS
Traditionally, in addition to providing added value, brands were a substitute for information a way for consumers to simplify the time-consuming process of search and comparison
before deciding what to buy. However, the Internet makes search and comparison much
easier. This threatens to undermine the value of brands.
On the other hand, the logic of the Internet cuts another way. Transactions on the Internet
require customers to provide detailed personal information - names, addresses, credit card
numbers, etc. Generally, people have concerns about sharing personal information. In
addition, the intangible nature of the Internet, and the fact that customers are buying goods
that, in most cases, they have never handled or seen (except on-screen), has placed greater
importance on trust and security. People only tend to transact with sites they know and trust
- sites that provide a wealth of information and make comparison shopping easy, where the
user feels a part of, and sites that understand the user's needs and preferences24. This
highlights the surfacing of information and relationships as key sources of added value in
the Internet economy.
Customers derive added value through the provision of information on the products or
services they buy, as well as on topics of interest related to the brand and product
characteristics25. Traditionally, brands have been developed in an environment whereby a
company creates a brand, and projects it onto a third party intermediary (the media). In
response, many unnamed customers develop a 'relationship' with the brand. The Internet, on
the other hand, offers interactivity, whereby the company can establish a dialogue and
24
Marathe, J., 'Internet Portals' - Durlacher Research, May 1999 (www.durlacher.com)
45
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
interact with individual consumers on a one-to-one basis26. In doing so, a company can
listen, learn, understand and relate to customers, rather than simply speaking at customers.
This creates the opportunity for companies to build stronger relationships than previously
attainable. However, this also poses a challenge as these relationships may take on a life and
character of their own. The differences between the traditional approach and the one-to-one
approach are outlined in Table 5.1.
TABLE 5.1 - THE EMERGING BRAND-BUILDING ENVIRONMENT
TRADITIONAL APPROACH
ONE-TO-ONE APPROACH
•
Monologue
•
Dialogue
•
Public
•
Private
•
Mass
•
Individual
•
Anonymous
•
Named
•
Adversarial
•
Collaborative
•
Focused primarily on one-off transactions
•
Focused on relationship over time
•
Remote Research
•
Intimate learning
•
Manipulative, 'stimulus-response' approach
•
Genuine needs driven, service approach
•
Standardised
•
Customised
The Internet gives companies control over all their interactions with customers and therefore,
brand-building must focus on the end-to-end customer experience - from the promises made
in the value proposition, to its delivery to the customer.
In maximising the customer
experience, companies have to find innovative ways of leveraging the information and
relationship building characteristics of the Internet.
25
McCann, Prof. J., 'Adding Product Value Through Information', - Fuqua School of Business, Duke
University, January 28, 1997 (www.duke.edu)
26
Peppers, D., Rogers, M., & Dorf, B., 'Is Your Company Ready for One-to-One Marketing?' - Harvard
Business Review, January-February, 1999, pp. 151-160
46
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
5.3
THE IMPORTANCE OF ONLINE CUSTOMER LOYALTY
According to a recent study27, 75% of senior executives believe the success of an e-business
initiative depends entirely on its ability to build customer loyalty. In fact, it could be argued
that customer loyalty is even more critical online. This view is reinforced by in-depth studies
carried out by Bain & Co. (2000) which identified the following factors28:
-
Companies will not break-even on one-time shoppers - often, customer acquisition costs
are high, and to recover their investment, companies need to retain customers so that they
return to the site repeatedly. Many e-retailers ('e-tailers') are averaging more than $100
to acquire a new customer, and some are spending over $50029. Therefore, it is very
unlikely that an online retailer can break even on a one-time shopper, unless they are
selling high-price, high-margin items.
-
Repeat purchasers spend more and generate larger transactions - due to more frequent
shopping and larger purchases.
-
Repeat customers refer more people and bring in more business - word-of-mouth is the
single most effective and economical way online businesses grow their sites.
-
Loyal customers are more willing to buy other products from the company. For example,
almost 70% of The Gap online shoppers said that they would consider buying furniture
from The Gap.
Repeat purchasing not only binds trust, but also provides more
opportunities for cross-selling.
These points stress the importance of online customer loyalty, and with customers holding all
the power, companies must ensure that they provide a completely satisfying end-to-end
customer experience. This is further reinforced by the fact that, on average, a disgruntled
online customer tells 10 people about a poor experience30.
27
'Electronic Business Outlook', - Research by PricewaterhouseCoopers / The Conference Board, 1999
(www.pwcglobal.com and www.converence-board.org)
28
Rigby, D., Baveja, S., Rastogi, S., Zook, C., Chu, J., & Hancock, R., 'The Value of Online Customer Loyalty
and How You Can Capture it', - A Mainspring Communication Report in collaboration with Bain & Co.,
March 17, 2000 (www.bain.com)
29
Hoffman, D. L. and Novak, T. P., 'How to Acquire Customers on the Web', Harvard Business Review, MayJune 2000
30
A Forrester Research Study, as cited in 'Creating a High-Impact Digital Customer Experience' - An A. T.
Kearney White Paper, 2000
47
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
5.4
INCREASING RETURNS ECONOMICS & FIRST-MOVER ADVANTAGE
Economists have traditionally taught that businesses grow to the point where returns to scale
diminish, as the benefits of scale are overwhelmed by the disadvantages of size31. However,
this is not the case on the Internet. Once the up-front investments are made (for research and
development and technology infrastructure), additional products, customisation for individual
customers, and other features can be added or changed at low marginal cost. Similarly,
additional customers and transactions can be managed with limited fixed cost investment. As
a result, each additional unit sold does not cost more than the last to deliver, and in the case
of information-based products, the costs approach zero32.
Even more important, businesses and online communities that rely on connectivity can enjoy
'network effects', (also referred to as 'viral economics'), where the value of the network, and
the value that each member realises, increases disproportionately as more people join the
network, as illustrated in Figure 5.1.
FIGURE 5.1 - THE NETWORK EFFECT
2 PARTICIPANTS
1 POSSIBLE INTERACTION
3 PARTICIPANTS
3 POSSIBLE INTERACTIONS
6 PARTICIPANTS
15 POSSIBLE INTERACTIONS
8 PARTICIPANTS
28 POSSIBLE INTERACTIONS
THE NETWORK EFFECT = N(N-1)/2
31
4 PARTICIPANTS
6 POSSIBLE INTERACTIONS
where N is the number of users
Lipsey, R. G., 'Positive Economics', 7th Ed., (London: Harper & Row), 1989, pp. 180-182
48
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
These characteristics suggest there may be 'first-mover' advantages for businesses that
establish leadership positions. With no competitors around, being first into a market makes it
easier to capture the consumer's share of mind. As the company builds a customer base and
develops a relationship with customers, its ability to track customer preferences and
customise offerings improves, enhancing the interaction. This makes it more efficient in
improving product selection, cross-selling and up-selling33. It also allows online companies to
tap supplementary revenue streams, including direct marketing, advertising and referrals,
delivering increased margin per customer - Figure 5.2.
FIGURE 5.2 - THE VIRTUOUS SPIRAL OF ONLINE GROWTH
SCALEABLE,
DEFENSIBLE
MODEL
INCREASED
RICHNESS & REACH
OF CUSTOMER
RELATIONSHIPS
LONG-TERM
COMPETITIVE
ADVANTAGES
• Brand experience
• Customer loyalty /
high switching costs
• Sourcing and distribution
leverage from scale
• Learning curve effects
• Unique value added for customers
• Scaleable customer service,
fulfilment
• Defensible advantage against
competitors
ENHANCED
REVENUE
STREAMS
• Broad and deep customer
insight
• Personalisation and
customisation offerings
• Enhanced selection
• Comprehensive convenience
• Core transactional revenue cross-sell and up-sell
• New items / categories
• Supplemental revenue advertising, direct marketing,
link revenues
32
33
Melnicoff, R. M., '5 Rules of the eEconomy', Outlook 1999, No. 21 - A Publication by Andersen Consulting
'The State of Online Retailing' - A Shop.org Study in collaboration with The Boston Consulting Group, Nov 1998
49
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
In addition, the larger customer base provides online companies with more leverage in
attracting and negotiating with key content, commerce and distribution partners. This, in
turn, provides added value and strengthens the company's ability to build customer loyalty
and instil switching costs. An expanding customer base enables retailers to amortise the cost
of brand-building over a larger base.
Given the connectivity of the Internet among
customers, larger sites can leverage more customer advocates to reduce customer acquisition
costs. Larger sites can also negotiate better supplier discounts or product placement fees.
This snowball effect favours first-movers, as once a strong lead is established, the leader will
pick up momentum and will stand to gain an insurmountable advantage - unless the leader
makes a serious mistake, or until a competitor finds a way to change the game again. When a
company reaches 'critical mass', the brand begins to take hold, and the cost of switching to an
alternative brand becomes quite high, leading to the exponential expansion of the customer
base. By the time a company has reached critical mass, its growth curve relative to a new
entrant is somewhat daunting. As a result, the value of the company rises exponentially with
market share. This is the logic behind some of the extraordinary valuations of Internet
companies. These factors help to understand why many online companies are spending
aggressively (up to 65% of their revenue34) on marketing and site development to acquire
customers and build critical mass.
New marketing strategies, such as 'viral' marketing, have emerged in attempts to exploit the
network effect and potential exponential growth of the customer base.
5.5
VIRAL MARKETING
Viral Marketing is a marketing technique that induces web sites or users to pass on a
marketing message to other sites or users, creating a potentially exponential growth (like a
virus) in the message's visibility and effect. It is often referred to as "word-of-mouth",
"creating a buzz", "leveraging the media", and "network marketing". Word-of-mouth is a
particularly powerful medium, as it carries the implied endorsement from a friend. The
Internet, with its e-mail lists, web sites, chat rooms and bulletin boards, makes
communication tighter, and word-of-mouth even more effective. As a result, viral marketing
is an effective tool in getting a message out fast, with a minimal budget and maximum effect.
34
'The State of Online Retailing' - A Shop.org Study in collaboration with The Boston Consulting Group, Nov 1998
50
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
5.5.1 The Case of Hotmail.com
The classic example of viral marketing is Hotmail.com, a company now owned
by Microsoft. Hotmail.com was one of the first free web-based e-mail services,
and they created a subscriber base more rapidly than any company in history.
Today they are the largest e-mail provider in the world with over 40 million
users. Their strategy was:
• Give away free e-mail addresses and services
• Attach a simple tag at the bottom of every free message sent out, saying:
• "Get Your Private, Free Email at http://www.hotmail.com"
• Then stand back while people e-mail their network of friends and associates
• These people then see the message, sign up for their own free e-mail, and
then propel the message even further to their own ever-increasing circles of
friends and associates.
• Each new user becomes a company salesperson, and the message spreads
organically.
In its first 1.5 years, Hotmail acquired over 12 million subscribers. A traditional
print publication would hope to reach 100,000 subscribers within a few years of
launch, but Hotmail signs up more than 150,000 subscribers every day, seven
days a week. Digital viruses can spread internationally more rapidly than
biological viruses that rely on the physical proximity of the host. In fact,
Hotmail is used in over 160 countries and is the largest e-mail provider in
countries such as Sweden and India, where they have never carried out any
promotional activities.
Other companies have adopted viral marketing techniques such as Mirabilis (acquired by
AOL), eGroups and Geocities (both recently acquired by Yahoo!).
Geocities enables
people to create personal websites for free. When a user builds a website, they tell all their
friends to visit it, and in doing so spread the word for Geocities.
If a company can provide a strong enough incentive for customers to share their lists of
personal contacts, whether for communications or community, they will have a powerful viral
opportunity at their disposal. A good virus will look for prolific hosts (such as students) and
tie into their high frequency social interactions (such as e-mail and messaging).
51
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
5.6
THE ONLINE EXPERIENCE & THE 7CS FRAMEWORK
The 7Cs Framework35 outlines the major components that add value and contribute to the
quality of an online experience (Figure 5.3). In essence, the 7Cs are a continuation and
restatement of marketing's traditional 4Ps (Product, Price, Promotion, Place).
FIGURE 5.3 - THE 7CS FRAMEWORK
CONVENIENCE
COMMUNICATION
CONTENT
The 7Cs
CUSTOMER CARE
CUSTOMISATION
COMMUNITY
CONNECTIVITY
Source: Adapted from 'Creating a High-Impact Digital Customer Experience' - An A. T. Kearney White Paper, 2000
Convenience
Convenience goes beyond the ability to conduct transactions around the clock.
The
customers' ability to access and display information rapidly is extremely important36. Sites
that are difficult to use can cause frustration, making customers 'click off' to another site. In
fact, 30% of potential customers leave sites because they cannot find what they are looking
for, and 66% of people who start a 'shopping basket' fail to complete the transaction37. As
35
'Creating a High-Impact Digital Customer Experience' - An A. T. Kearney White Paper, 2000
'The E-business Technology Forecast' - A PricewaterhouseCoopers Report, 2000
37
Rigby, D., Baveja, S., Rastogi, S., Zook, C., Chu, J., & Hancock, R., 'The Value of Online Customer Loyalty
and How You Can Capture it', - A Mainspring Communication Report in collaboration with Bain & Co.,
March 17, 2000 (www.bain.com)
36
52
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
shown in Figure 5.4, ease-of-use, ease-of-navigation, and fast response times are among the
most important factors in establishing web brand loyalty38, whereas a slow response time and
site downtime will have a significant negative impact.
FIGURE 5.4 - FACTORS AFFECTING WEB BRAND LOYALTY
KEYS TO WEB BRAND LO YALTY
40%
37%
36%
36%
27%
30%
20%
10%
0%
Ease of Use
& Navigation
Fast
Response Time
Familiarity
Relevant &
Accurate Information
KILLERS O F WEB BRAND LO YALTY
40%
30%
26%
24%
22%
20%
16%
10%
0%
Outdated
Information
Slow
Site Downtime
Response Time
Poor Customer
Service
Source: Cognitiative Inc. as cited in Business Week Magazine, 29th October 1999 (www.businessweek.com)
Content
Content is relevant and useful information directed at the needs and interests of the targeted
users. With almost infinite display space and inventory capability, online companies have the
opportunity to provide rich, up-to-date information, expert insights, and a wide range of
products, which can enhance the company's value proposition. Content is considered to be a
'sticky' application39 as it entices visitors to spend longer periods of time on the site.
38
39
Cognitiative Inc. as cited in Business Week, October 29, 1999 (www.businessweek.com)
Davenport, T., 'Sticky Business', CIO Magazine, February 2000 Issue
53
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
A certain amount of 'commerce content' is important to support the purchase decision.
According to Forrester Research40, 31% of online consumers use the Internet for obtaining
product information, even if they purchase offline, and nearly 20% use it for post-sales
support. Good content can help to educate buyers and sellers and create a greater sense of
control over the transaction. On the other hand, visitors should not be engulfed with too
much information. Other content includes community-generated content, and advertising (if
it is relevant and useful).
Customisation
Customisation involves tailoring the presentation of a web-site to individuals, based on
profile information, demographics, or prior transactions. Online sites can track a customer's
purchase history and modify its service accordingly. Often, sites allow 'surfers' to customise
their experience by choosing what type of information they view through personalised sites
(such as My Yahoo!), as well as through loyalty programmes that provide targeted benefits.
Some companies have taken this a step further and customise the product or service on offer
(Dell offers 'made-to-order' computers through Dell Online). Customisation creates the
feeling of a one-to-one relationship, which enhances the user's online experience.
Community
Online communities are emerging as new gathering places for consumers with similar
interests (e.g. iVillage and Geocities). These sites allow members to interact with one
another, share information and access a wide range of services. An important contribution of
these communities is that they provide members with a medium to communicate with each
other. Members can interact in chat rooms, use bulletin boards, and organise live events. A
unique characteristic of an online community is that the site includes both editorial content
(determined by the site owner) and member driven content. An online community offers a
compelling way to entice customers back to a site. It fosters a sense of belonging41 among
the members, which is facilitated by a combination of factors (Figure 5.5). For a community
to work, it needs a critical mass of members42.
40
Morrisette, S., Clemmer, K., & Bluestein, W. - A Forrester Research Report, 1999 (www.forrester.com)
McWilliam, G., 'Building Stronger Brands through Online Communities' - Sloan Management Review, Spring 2000
42
Armstrong, A., & Hagel, J., 'Real Profits from Virtual Communities' - The McKinsey Quarterly, 1995, No. 3.
41
54
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 5.5 - THE COMMUNITY HEXAGON
PRECISELY
TAILORED
CONTENT
MUTUAL
BENEFITS OF
PARTICIPATION
IDENTIFICATION
WITH THE
BRAND
SENSE OF
BELONGING
OPPORTUNITY
TO SHAPE THE
DEVELOPMENT
OF WEBSITE
AWARENESS
OF OTHER
LIKE-MINDED
USERS
ABILITY TO
INTERACT WITH
OTHERS ON WEBSITE
Source: Mole, C., Mulcahy, M., O'Donnell & Gupta, A., 'Making Real Sense of Virtual Communities' - A
PricewaterhouseCoopers Study, 1999
Communities enhance the speed and value of information sharing, allowing customers to
deepen their experience with a brand and build more personal connection, and can create
emotional loyalty, when membership in the brand's community becomes an end in itself43.
Connectivity
Connectivity is concerned with site-to-site connectivity and user-to-site connectivity. Site-tosite connectivity focuses on connecting users to other relevant sites. Companies can provide
a selection of related links that complement the site's purpose and value proposition, as well
as attracting traffic from other sites. Connectivity is enhanced by linking to search engines /
portals44 and popular sites where target customers are likely to be browsing (see Figure 5.6).
This is similar to placing offline stores in high traffic areas. Once customers know of a site,
they opt to input the URL (Internet address - www.brand-name.com) directly into the
browser and access the site immediately.
43
Fournier, S., 'Consumers and Their Brands: Developing Relationship Theory in Consumer Research', Journal
of Consumer Research, March 1998, pp. 343-373.
44
Search engines / portals enable users to find information based on relevancy to a query or keywords.
55
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 5.6 - CUSTOMER ACCESS TO INFORMATION
INTERNET
ACCESS
DEVICE
CUSTOMER
SOFTWARE
AND
BROWSER
PORTAL
CUSTOMER SIDE
VERTICAL
PORTAL
WEBSITE
INTERNET SIDE
User-to-site connectivity focuses on providing incentives for users to connect back to the site.
The development of loyalty programmes, which provide targeted and unique (customised)
benefits to the customer, serves this purpose and helps to build customer loyalty. Other tools
such as bookmarking the page can also facilitate connectivity.
Customer Care
Online customers often require assistance and reassurance. Customers share security and
privacy concerns, and a recent survey by MarketWatch45 revealed that 62% of surfers feel
that giving out personal information on the Internet is unsafe. Therefore, customer support at
all stages of the interaction is important, and can be provided through e-mail, online chat,
toll-free telephone numbers, and FAQ pages (Frequently Asked Questions) to solve
problems. In addition, customer care activities can involve providing a variety of payment,
delivery and return options, as well as features such as gift-wrapping.
Communication
The Internet provides the opportunity to establish dialogue with customers through e-mail,
live chat, and online surveys. Communication can be tailored to specific user interests and
should allow for two-way interaction. It is important in building relationships, as well as
informing and reminding customers of special offers, news up-dates, activities, events and
subjects of interest to the customer.
45
MarketWatch, (www.marketwatch.com)
56
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
5.7
THE INTERACTIVE BRAND-BUILDING MODEL
The stages in building a loyal customer base are outlined in Figure 5.7, which is basically a
reformulation of the Innovation-Adoption Model (Chapter 3, Figure 3.4 - Awareness, Interest,
Evaluation, Trial, Adoption), modified to take into account of the interactive dynamics of the
Internet. This model consists of five stages - Attract, Engage, Retain, Learn and Relate.
FIGURE 5.7 - THE INTERACTIVE BRAND-BUILDING MODEL
AND
ATE
R EL
T
RES
N TE TI O N
TE I
A
ERA ICIP
GEN PART
ATTRACT
AGE
ENG
T
RE
M
UM
NS K
CO A C
RE B
SU M E
O
E
AK C
N
AI
ER
LE
AR
S’
LE
A
CUS
TO TOMI
PR O
S
VID E INTE
EU
R
NIQ ACTI
O
UE
VAL N
UE
ATTRACT CONSUMERS TO
THE APPLICATION
N
RN
A
PR BO
E UT
F
E R CO
E N
N
CE SUM
S
E
RS
’
Source: Adapted from Kierzkowski, A., McQuade, S., Waitman, R., & Zeisser, M., 'Marketing to the Digital
Consumer', McKinsey Quarterly, 1996, No.2, pp. 180-183 (www.mckinseyquarterly.com)
Attract
The critical first step of the digital customer experience is to attract 'eyeballs', and bring
people to the site for the first time. The company must build awareness and communicate its
value proposition to its target customers. This is more difficult online than offline, because
there is no physical presence. Therefore, visibility relies solely on Communication. The
mechanisms to communicate range from traditional media (TV, billboards, Magazines,
Newspapers, etc.) to online tools, including affiliate programmes with other websites, links
from directory searches (Connectivity), e-mail notifications and banner advertisements. The
popularity and effectiveness of the different promotion methods are outlined in Figure 5.8.
57
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 5.8 - WEBSITE PROMOTION METHODS - POPULARITY & EFFECTIVENESS
Method
Popularity
Effectiveness (Scored 0 - 5)
Banners
89 %
2.8
E-mails to Customers
77 %
4.3
Buttons
55 %
3.2
Public Relations
45 %
4.1
Magazines
34 %
3.4
Sponsorships
34 %
3.3
Newspapers
32 %
2.6
Radio
32 %
3.4
Direct Mail
30 %
3.4
Television
30 %
4.0
E-mail to opt-in lists
23 %
3.5
Outdoor
17 %
3.7
Affiliate Programmes
17 %
4.3
Source: Forrester Research, as cited in 'Targeting Consumers via the Internet' - Economist Intelligence Unit
2000 (www.ebusinessforum.com)
The most effective methods are direct e-mail, affiliate programmes, public relations and
television advertising. Online companies must ensure that the cost of attracting and acquiring
customers is lower than the average lifetime value of these customers (LVC)46.
Kapferer's Brand Prism (Ch. 3, Fig. 3.3) is useful to ensure that a company develops a distinct
and consistent brand identity. Creativity is also an important factor in gaining attention in
today's cluttered marketplace. Attracting customers is only the first step in building online
brands. Companies then need to engage customers to obtain their interest and participation.
Engage
With the multitude of choice available on the Internet, it is important to quickly engage
consumers' interest before they move on. The key factors at this stage are Convenience
combined with interesting Content.
46
The Lifetime Value of a Customer (LVC) is an economic measure that is derived by calculating the average
profit per transaction, multiplied by the expected rate of transactions, discounted over the expected duration of
the brand-customer relationship.
58
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Retain
Maintaining ongoing contact is essential for building relationships. It is the extension of
engaging and focuses on keeping a customer on the site through the use of sticky applications.
Content is the basic driver of retaining customers on a site, and must be continuously updated due to the multiple visit nature of customers.
The objective is to increase the
conversion rate (% of browsers converted into buyers), and retaining customers and engaging
them on an ongoing basis results in increased product purchase opportunities and provides
the opportunity to learn more about the customer, and forge closer relationships than any
offline operator. Communities and Customisation are other sticky applications.
Learn
The Internet provides extensive opportunities to learn about consumers (demographics,
attitudes and behaviour). The initial site registration provides an early opportunity to obtain
useful information. Building up a knowledge database on each customer - who they are and
why they shop online, and what additional products and services are they interested in provides companies with valuable information which, if used properly, can create value for
the customer and help build the brand-customer relationship.
Relate
By leveraging the multidimensional data gathered from ongoing interactions with individual
customers, a company can create value by providing a personalised online experience. This
helps to create a customer base that spends more time and money at a site. Customisation
and good Customer Care help to erect switching barriers and encourages customers to return
and repeat the cycle.
5.8
LIMITATIONS OF BRAND-BUILDING ON THE INTERNET
It would be unrealistic not to acknowledge some of the limitations to what the Internet can
offer the brand-building process:
• The Internet does not have the penetration of other promotional mediums (e.g. TV, Radio).
• The Internet supports brand-building activities where there is a need to build a
relationship. Certain product categories, such as groceries and convenience goods, do not
lend themselves to a need for customers to build a relationship with the brand (Figure 5.9).
59
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 5.9 - CATEGORIES SUITABLE FOR INTERACTIVE MARKETING
HIGH
FIT WITH INTERACTIVE MEDIA
SOFTWARE
SELECTED
GROCERIES
MUSIC
BOOKS
INTERACTIVE
GAMES
SPORTING
GOODS
REAL ESTATE
BROKERAGE
TOYS
AUTOS
HIGH-END
APPAREL
FINE
JEWELLRY
GASOLINE
LOW
TRAVEL
SERVICES
WHITE
GOODS
CONVENIENCE
STORES
LOW
FINANCIAL
SERVICES
INSURANCE
NEWS
MEDICAL
SERVICES
CONSUMER
ELECTRONICS
BABY
PRODUCTS
POTENTIAL FOR RELATIONSHIP BUILDING
HIGH
Source: Kierzkowski, A., McQuade, S., Waitman, R., & Zeisser, M., 'Marketing to the Digital Consumer',
McKinsey Quarterly, 1996, No.2, pp. 180-183 (www.mckinseyquarterly.com)
• Not all product categories have a strong fit with interactive media as they still need real
life interaction, and the need to stimulate the other senses (taste, touch, smell).
• Brand-building favours products that can be sold online. However, it is not economically
feasible to sell certain products, especially in small quantities, due to high delivery and
transaction costs (relative to the value of the product).
5.9
CONCLUSION
On the Internet, the experience is the brand. In order to create "apostles", companies must
provide a satisfying end-to-end customer experience - from the promises made in the value
proposition, to its delivery to the customer. Given the high acquisition costs of online
customers, it is critical for companies to build relationships and foster brand loyalty. The 7Cs
Framework outlines the key components of the brand experience and the sources of added
value. The interactive brand-building process involves attracting, engaging and retaining
customers, and as the relationship develops, the interaction provides the ability for companies
to learn from their customers and relate, providing further added value. The next chapter
analyses the brand-building efforts of seven companies.
These case studies provide a
practical insight into how companies are building their online brands.
60
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
CHAPTER 6
CASE STUDIES
61
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.1
INTRODUCTION
This chapter provides an analysis of seven companies. Each case is presented in the same
format including, a company overview, its value proposition, the sources of added value
(using the 7Cs Framework), its brand-building strategy (how it generates traffic), and other
key factors that have contributed to its success (or failure). The cases are presented in the
following sequence - Amazon.com, Barnesandnoble.com, Boo.com, CDnow, eBay,
Gap.com and Yahoo!.
6.2
CASE STUDY: AMAZON.COM
6.2.1 Company Overview
Amazon.com has become synonymous with e-commerce, and is one of the few Internet
brands that is recognised all over the world. It is the 57th most valuable brand in the world47,
and the most widely recognised e-commerce brand name in the US (with 60% awareness48).
Amazon serves over 23 million customers from 160 countries, and has sales of over $2
billion. In addition, it is the most visited e-commerce website in America, and one of the top
two or three in Britain, France, Germany and Japan49.
In July 1995, Amazon.com launched with a mission to use the Internet to transform book
buying into a fast, easy, and enjoyable experience. Amazon.com has since evolved from
being an online bookseller into a one-stop shop with "Earth's Biggest SelectionTM" of more
than 18 million products, ranging from books and music to auctions and zShops (a portal /
marketplace that online sellers can use to sell their products), and has equity investments in
several e-tailers. Figure 6.1 outlines Amazon's timeline and major milestones.
6.2.2 Value Proposition
Amazon.com's success stems from its compelling value proposition.
Amazon provides
increased added value on several dimensions, including: increased selection, discounted
prices, more information, greater convenience, and higher levels of customisation and service
than the traditional shopping experience allows.
In addition, Amazon has cultivated a
reputation for excellence, innovation and delivering on its promises. Through its provision of
a one-stop shopping experience, combined with its levels of customisation and customer
service, Amazon has been able to differentiate itself from other online competitors.
47
Interbrand (www.interbrand.com) - see Appendix A.
'Amazon.com - It's an Ocean, Not a River' - Goldman Sachs Report, November 11, 1999
49
'Amazon's Amazing Ambition' - The Economist, February 26, 2000 (www.economist.com)
48
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
TABLE 6.1
1994
1995
1996
1997
July
July
July
May
July
September
October
November
December
1998 February
March
May
June
July
August
September
October
November
December
1999 January
February
March
AMAZON.COM - TIMELINE AND MAJOR MILESTONES
-
Amazon.com is founded by Jeff Bezos
Amazon.com goes live
Amazon launches Associate Programme
Amazon IPOs for $49million. Company has a market capitalisation of $561 million
Amazon enters into agreement with Yahoo!
Amazon becomes exclusive bookseller for Excite
Amazon becomes exclusive bookseller on Prodigy shopping Network
Amazon becomes exclusive bookseller on Alta Vista
Amazon and Netscape announce strategic online deal
Amazon opens second distribution centre
Amazon and Geocities strike exclusive bookseller agreement
Amazon completes $74 million credit facility
-
Amazon Associates Member Programme surpasses 30,000 members
Amazon.com Kids goes online
Amazon acquires Bookpages and Telebook to expand in the UK
Amazon opens Music Store
Amazon establishes relationship with Intuit's personal finance website and select desktop
software.
Amazon buys PlanetAll ad Junglee Corporation
Amazon and Yahoo! Strike Global Merchant Agreement
Amazon.com enters European book market
Microsoft signs Amazon.com as Premier Merchant on MSN shopping
Cyberian outpost joins product retailers on Amazon.com's new shopping referral service
-
August
-
October
-
April
May
July
November
December
-
2000 January
February
March
April
May
Amazon opens third distribution centre to meet rapid growth
Amazon invests in DrugStore.com
Amazon invests in Pets.com
Amazon launches online Auction site
Amazon agrees to purchase Live/bid.com, provider of live auctions
Amazon adds Kansas distribution centre to handle rapid growth
Amazon launches greeting-card service
Amazon invests in HomeGrocer.com
Amazon announces further plans to expand distribution network to meet rapid growth.
Amazon.com Electronics and Amazon.com Toys & Games is launched
Amazon announces strategic alliance and invests in Gear.com
Amazon introduces "Purchase CirclesTM", featuring thousands of bestseller lists for hometowns,
workplaces, universities, and more
Amazon launches "Amazon.com Anywhere," providing shopping from wireless devices, such as
the Palm VII organiser.
Amazon opens another customer-service centre to meet rapid growth
Amazon launches 4 new stores: Home Improvement, Software, Video Games and Gift Ideas
Amazon and Sotheby's launch www.sothebys.amazon.com
Amazon acquires Back to Basics Toys to add to Amazon.com Toy Store
Amazon announces a multi-million dollar marketing and strategic alliance with, and minority
investment in, Ashford.com
Amazon and Sprint First offer Internet shopping on wireless phones
- Amazon opens a customer service centre in Huntington, West Virginia, to meet rapid growth
- Amazon and online car-buying service Greenlight.com Announce Strategic Investment and
Promotional Agreement
- Amazon enters into a strategic partnership with Drugstore.com
- Amazon enters strategic alliance with living.com to create a "home living" store at amazon.com
- Amazon.com Auctions and zShops provide new tools to its merchant community
- Amazon launches www.toolcrib.amazon.com, a tools and equipment store for professional tool
users and woodworkers
- Amazon announces investment in kozmo.com
- Amazon and eziba.com announce investment and strategic alliance
- Amazon opens customer service centre in The Hague
- Amazon launches lawn & patio store
- Amazon launches health and beauty store
- Amazon.com invests in wineshopper.com
- Customers can shop at Amazon.com via the new wireless pocket PC
- Amazon surpasses 20 million cumulative customer accounts
- Amazon launches new kitchen store
- Amazon.com and NextCard launch co-branded credit card
- New home living store from living.com opens its virtual doors at amazon.com
63
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.2.3 Sources of Value - The 7Cs Framework
Convenience
Amazon provides value-added features to increase the ease of shopping, encourage repeat
visits and drive higher conversion rates. The site is easy-to-use, offering multiple paths to a
given book or product. The site is designed to minimise download time (limited graphics) for
users on modems and despite the heavy traffic, downloads quickly and services visitors
adequately - Figure 6.1.
FIGURE 6.1 - OVERVIEW OF AMAZON.COM'S WEBSITE
Wide selection of
product categories
Immediate
customer
recognition and
customisation of
product offering
Simple, logically
structured,
easy-to-use, and
quick-to-load pages
Over time, Amazon has added other features for shopping convenience, such as the
Amazon.com All Product search (searches the entire web), the 1-ClickTM express checkout,
gift click, wish lists, gift reminders, and Amazon.com Anywhere to support access from
wireless devices (i.e. mobile phones, Palm VII PDA device).
Content
Amazon provides content on several levels, including book jacket images, book summaries,
expert reviews, customer testimonials, recommendations, interviews with authors, discussion
boards, and customer Purchase CirclesTM. Customer purchase circles allow shoppers to
cross-reference similarities such as where people work, live or study. This is an example of
64
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Amazon's ability to data mine its vast customer base of information to learn and relate by
making recommendations and presenting items on the web page that have a high probability
of being of interest to particular customers - thereby increasing conversion rates.
By
leveraging its vast customer base, Amazon's content is not reproducible by competition, and
therefore, creates a competitive advantage.
Customisation
Amazon provides customised features and services, from the customer recognition at the
point of interface (Figure 6.1) to the content and recommendations based on consumers'
purchase history and Purchase CirclesTM.
In doing so, Amazon creates one-to-one
relationships with its customers, which helps to build loyalty and create switching costs,
while driving up repeat purchases and cross-selling opportunities.
Community
Amazon has also added a community element to the purchasing process, and ingeniously
turned booklovers' predilections into a source of differentiation by soliciting and posting
readers' comments with book displays. This builds the loyalty of both the customers who
write reviews and the customers who find community among like-minded people. More
recently, Amazon introduced Amazon.com Discussion Boards to further enhancing the
community feel by allowing customers to share information on topics of interest.
Connectivity
Amazon has built relationships with high traffic web portals and sites, converting them into a
storefront for Amazon, and has developed an Associates Programme, linking it to a large
number of other sites. These are discussed in more detail in Section 6.2.4.
Customer Care
Amazon places great emphasis on satisfying customers and providing high levels of customer
service. This customer-centricity is evident in all Amazon's activities, from its shopping
basket applications which lists the estimated time to delivery reliably, to the proactive
notification of new items of interest, real-time shipping and backorder notices, and customer
interaction. All these activities exploit the communications capability of the web and e-mail
to offer greater customer 'touch' and better customer service.
65
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Communication
Amazon maintains close communication with customers. Once orders are placed, they are
subsequently confirmed by e-mail, and customers are also e-mailed when the items are
shipped from the warehouse. In addition, two personalised services, Eyes and Editors, help
maintain contact and build traffic by e-mailing customers when desired products or books
become available.
As a result of all these factors (7Cs), Amazon has been able to create a strong value
proposition and compelling online experience that engages and retains customers, enticing
them to return to the site and purchase repeatedly.
6.2.4 Brand-Building Strategy
Amazon has attracted traffic in a number of ways. Through the first half of 1996, Amazon
had primarily relied on word-of-mouth among tightly knit online communities (newsgroups
and chat rooms) to create a 'cyberbuzz' and improve its visibility. In the second half of 1996,
it began to advertise in print media and online - a move that along with the novelty of its
business model and the newness of the Internet, helped generate publicity and stories about
the company in publications such as The Wall Street Journal, The Financial Times, Business
Week, Newsweek, New Yorker and The Economist.
In July 1996, Amazon inaugurated the Associates Programme under which other websites
could display the Amazon.com hot-link and offer specific books of interest to their visitors.
This enabled Amazon to reach more customer segments and niches (Figure 6.2). Instead of
paying directly for this exposure, Amazon offered Associates referral fees of up to 15%,
which only applied to sales that resulted from the initial click-through, and not subsequent
purchases. The Associates Programme has been phenomenally successful, attracting member
sites of all sizes, and by 1999 it had over 200,000 members, increasing to over 500,000 by
August 2000.
66
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 6.2 - AMAZON.COM'S ASSOCIATES PROGRAMME
Source: Amazon.com's website (www.amazon.com)
Amazon has developed alliances and partnerships with high traffic web portals and sites.
From July 1997 to December 1998, Amazon closed deals with five of the six most visited
Internet addresses, including: America Online (AOL), Netscape's Netcenter and
NetSearch, Yahoo!, and Geocities.
These multimillion-dollar, multiyear deals involve
exclusive book-selling rights, mutual links, and primary button placement on web portal
search engines. The Yahoo! agreement, was also linked to Amazon's entry into Europe Amazon.de became the local provider for Yahoo! Germany and Amazon.co.uk the local
provider for Yahoo! UK & Ireland. Amazon also established agreements with AltaVista,
Excite, Prodigy and @home.
In addition, Amazon has used viral marketing techniques through customer reviews, free eCards and gift certificates (which customers send to friends, thereby promoting
Amazon.com). Interesting viral initiatives include:
•
Amazon.com Refer-A-Friend - customers are encouraged to provide e-mail addresses of
friends. In return, each friend is sent a $5 Amazon.com gift certificate (in your name),
and you are given a $5 gift certificate for each customer you provide. Therefore, the
customer acquisition cost is only £10.
•
Amazon.com About Me - allows customers to create a personal profile (with pictures) on
the site. People tend to tell their friends about it, spreading the word for Amazon.com.
67
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
The majority of customers continue to be attracted through word-of-mouth, however, with the
explosion of websites, Amazon has also incorporated traditional offline media (TV,
Magazines, billboards, newspapers) to generate awareness. According to Jeff Bezos, "we had
a world-class site the day we launched - but it was only a tenth as good as the site we have
now. And we relied on word-of-mouth to build awareness, so we didn't have to do much
advertising. That's not possible anymore50".
Amazon's expansion into new e-tailing categories and non-e-tailing businesses (auctions and
zShops) have significantly increased product availability while leveraging the site's enormous
customer traffic to create additional revenue streams. This has also helped to generate
incremental traffic at no cost to Amazon's existing businesses, resulting in increased sales for
existing e-tailing sectors and therefore 'monetising' their customer base. This strategy has
created an efficient traffic-generating machine by creating virtual loops of traffic so that
Amazon is top of mind when customers go online.
With this combination of promotional methods, Amazon has been able to achieve average
customer acquisition costs of less than $20 - significantly lower than other online companies.
Once customers are attracted to the site, Amazon's proven online merchandise selling
techniques including easy-to-use search options, clear presentation, interesting content,
community feel (as discussed previously), have been instrumental in engaging and retaining
customers' on the site and driving higher conversion rates. As the relationship develops,
Amazon maintains a database of customer preferences, buying patterns and viewing habits,
which is analysed (learning) and used to provide value-added services such as the
introduction of new product categories, and improved customisation and recommendations
(e.g. Purchase CirclesTM). By relating to customer needs, Amazon is building customer
loyalty and encouraging repeat business, which accounts for 66% of Amazon's sales.
50
Willis, C., 'Does Amazon.com Really Matter?' - Forbes, April 6, 1998
68
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.2.5 Other Factors that Contribute to their Brand Leadership
Innovation & First-Mover Advantage
As an early-mover on the Internet and a first-mover in online bookselling, Amazon has been
able to build a strong brand at relatively low cost, due to the hype and coverage it was given.
This has helped them attract customers and move up the learning curve quickly, establishing
Amazon as the leading online bookseller with a large customer base. In addition, Amazon
was able to secure partnerships and alliances with key players, further enhancing their value
proposition. Nevertheless, Amazon is constantly seeking new ways of improving its offering,
and according to Jeff Bezos, "we're not a stationary target. We were blessed with a two-year
head start, and our goal is to increase that gap51".
Customer Focus & Reputation for Excellence
Amazon's customer focus is evident throughout all its activities. According to Jeff Bezos,
"Online, the balance of power shifts away from the company and goes towards the customer.
Our secret is that we have not been competitor obsessed. We have been customer obsessed,
while our competitors have been Amazon.com obsessed52". As such, Amazon continually
invests in re-working and improving its technology infrastructure and software (80% in backoffice operations), developing customer service centres and expanding its distribution network
to support high levels of service, establishing a reputation for excellence and fulfilment.
Distinct Brand Identity
Jeff Bezos chose the name 'Amazon', because he wanted it to be short, memorable, to capture
the spirit of the site, and to convey its vast size and offering. In addition, he wanted the name
to start with an 'A' so that it would appear at the top of search engine lists. Amazon's
understanding of its brand identity has been a critical factor. Amazon received criticism for
expanding its product line, thereby diluting the value of its association with books. However,
management realised that Amazon had become more associated with other core brand values
- a wide range of choice, good value, and its safe and secure delivery. As such, Amazon has
been successful in stretching its brand to include new categories and non-e-tailing businesses.
For example, in June 1998, Amazon unveiled a music store, which within six months
propelled Amazon to one of the leading online music retailers. According to Jeff Bezos,
51
52
Hazleton, L., 'Jeff Bezos: How he Built a Billion-Dollar Net Worth Before his Company Even Turned a Profit',
Success, July 1998.
Saunders, R., 'Business the Amazon.com Way', (Oxford: Capstone Publishing), 1999
69
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
"Brands to a certain degree are like quick-drying cement. When they're young, they're
stretchable and pliant, but over time they become more and more associated with a
particular thing and harder to stretch53".
6.2.6 Conclusion
Amazon has achieved a customer base of over 23 million people and an annual revenue run
rate of over $2 billion in less than five years. The key factors driving its growth and high
retention rates, stem from its compelling value proposition and high quality end-to-end
customer experience. Amazon has also benefited from a first-mover advantage giving it an
edge over competitors, however, Amazon's intense focus on customer needs and continual
innovation, have kept it ahead. This customer-centricity is a key hallmark of a successful
Internet brand.
Amazon also recognised that service quality is a perception, not necessarily a reality.
Amazon delivers on its promises of a wide inventory of products, secure payment procedures,
speedy delivery and good value. Quality is only measurable in the minds of visitors to the
site, and to sustain a positive image and satisfactory end-to-end experience, Amazon has
continuously invested in customer service, distribution centres and upgrading the site, with
new products and value added content. In doing so, they have cultivated a reputation for
excellence and fulfilment, which is critical on the Internet.
Although Amazon has successfully built a strong brand and loyal customer base, it has not
recorded any profits to date. Nevertheless, Amazon is claiming to be making profits on its
books and music categories, perhaps trying to defend its view that losses taken to build
market share can reap profits later. However, if it continues to incur losses, and investors
lose confidence, the drain on their cash resources will push them towards bankruptcy. This
raises a critical issue, as the true value of a brand lies in its sustainability.
53
Warner, B., 'Marketers of the Year: Jeff Bezos, Volume Discounter' - Brandweek, October 12, 1998
70
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.3
CASE STUDY: BARNESANDNOBLE.COM
6.3.1 Company Overview
Barnesandnoble.com is the fourth largest e-commerce retailer54, and is the second largest
online bookseller (after Amazon.com). Besides books, Barnesandnoble.com provides other
online categories offering software, magazines, music, prints & posters and related products.
Launched in 1997, Barnesandnoble.com was able to 'hit the ground running', as it could
capitalise on the infrastructure and back-end operations (warehouses, contacts, book
databases, etc.) established by its parent company, Barnes & Noble Inc. Barnes & Noble Inc.
is one of the best known traditional booksellers in the United States, and currently operates
520 Barnes & Noble superstores (located in cities and high traffic areas), and 470 B. Dalton
bookstores (located in shopping malls).
However, all front-end operations (marketing,
promotion) between the online store and the retail stores have been kept separate. Currently,
Barnesandnoble.com is approximately 40% owned by Barnes & Noble, Inc., 40% owned by
Bertelsmann AG, and 20% owned by the public. Barnesandnoble.com's timeline and major
milestones is outlined in Figure 6.2.
TABLE 6.2
BARNESANDNOBLE.COM - TIMELINE AND MAJOR MILESTONES
1997 January
- Barnes & Nobles announces plans to become the exclusive bookseller on America
Online's (AOL's) Marketplace
March
- Barnes & Noble went online at AOL
May
- Barnesandnoble.com launched its website (www.barnesandnoble.com)
- Announces distribution relationship with New York Times
September - Launches Affiliate Network
December - Forges distribution deal with AOL
1998 March
May
July
October
November -
1999 May
July
August
October
December
2000 January
February
May
June
July
-
Develops distribution alliance with Wired Digital
Launches revamped site, including software store
Launches Business Solutions programme
Sells 50% stake to Bertelsmann for $200 million
Adds used, rare, and out-of-print books to inventory
Attempts to buy Ingram Book Group
$450 million IPO
Price war erupts with Amazon.com
Launches Music Store
Announces plans to develop huge distribution centre
Launches Prints & Posters Gallery and electronic greeting card service
Unveils 'bn.com on the Go' to provide access to wireless devices
- Barnesandnoble.com and Microsoft announce that they will create an eBook
superstore
- Launches Internet Radio
- Offers same day delivery in Manhatten
- Acquires minority stake in NotHarvard.com
- Launches BNTV
- Acquires equity stake in Mightwords
- Barnes & Noble.com announces strategic relationship with Palm Computing
- Barnes & Noble University opens registration for free online courses
- Launches Video Store
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.3.2 Value Proposition
Barnesandnoble.com offers customers an easy-to-search catalogue of virtually every book
currently in print, as well as an extended searchable catalogue of millions of out-of-print,
previously-owned and rare books. In addition, they offer customers fast delivery, good
prices, easy and secure ordering, rich editorial content and a community experience.
6.3.3 Sources of Value - The 7Cs Framework
With decades of experience in developing 'bricks-and-mortar' stores, Barnes & Noble planned
to dominate online book-selling, but instead of developing an outstanding interface to its
inventory, the company created a site very similar to Amazon.com's (Figure 6.3).
FIGURE 6.3 - OVERVIEW OF BARNESANDNOBLE.COM'S WEBSITE
Simple, logically
structured, and
easy-to-navigate site
Categories focus on
books, software,
music
New Initiatives
Barnesandnoble.com's virtual storefront is graphically richer than Amazon.com's and takes a
bit longer to download, however, in terms of the 7Cs framework, the features are practically
identical. Both Amazon.com and barnesandnoble.com let customers sign up to receive email reviews and announcements of new titles. Both offer detailed bibliographic information,
including title, author, edition, publisher, etc. Both have expanded their convenience to offer
54
Media Metrix, as cited on Barnesandnoble.com's website (www.barnesandnoble.com or www.bn.com)
72
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
access through wireless devices. Both offer customisation that permits users to personalise
the experience. Both try to foster a community of readers by letting customers post reviews
online. Both offer 'associate programmes' that let other websites link to their sites, and both
are expanding globally.
Although, Barnesandnoble.com has created a high quality website and customer experience,
it lags behind first-mover Amazon.com. Barnesandnoble.com closed 1999 with 4 million
customers, while Amazon.com had over 17 million. Barnesandnoble.com's 1999 revenues
were $202.6 million, compared to Amazon.com's $1.64 billion.
Barnesandnoble.com's
market capitalisation was $251 million, while Amazon.com was valued at $21.1 billion. The
reasons for this are explained in the next section.
6.3.4 Brand-Building Strategy
Barnesandnoble.com has run extensive and effective online advertising and has used the full
range of traditional media to build awareness and encourage trial. They have also signed
exclusive and non-exclusive book-selling deals with major websites including AOL (fouryear deal costing $40 million55), Lycos, Webcrawler, Yahoo!, Netscape and Microsoft
Network, and have formed strategic partnerships with ten of the top twenty websites (others
include ZDnet and CNN). They have developed an affiliate programme that links sites to
Barnesandnoble.com in return for a commission on any purchases that they originated - a
replica of Amazon's Associates Programme. As of February 2000, this programme had more
than 300,000 affiliates in its referral network.
These initiatives have generated traffic to the site, however, there is little mention of the
online store in the traditional 'bricks-and-mortar' stores, and Barnes & Noble Inc, has yet to
leverage its strong brand in cyberspace. Instead, the largest US bookseller has rigorously
kept its 40% owned net operations separate in an attempt to tap into the investor frenzy for
pure online players, prevent cannibalisation of its existing business, and avoid charging sales
tax in states where it has stores56. However, this decision to keep the relationship with the
bricks-and-mortar stores at arm's length has had major repercussions.
55
56
'AOL is paid $40 Million in 4-Year Marketing Pact' - The Wall Street Journal, December 17, 1997
Internet and mail order companies are only required to collect sales taxes in states or localities where they
have a physical presence such as a store or a warehouse
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Barnesandnoble.com's key differentiator from Amazon.com is its association with Barnes &
Noble Inc., and the tangibility that this provides.
By failing to leverage it,
Barnesandnoble.com has lost access to valuable customers. At any given point there are
hundreds of customers browsing their aisles looking for something to read. Unfortunately,
people began using their stores as a physical showcase for online rivals such as Amazon.com.
Barnesandnoble.com should have aggressively cross-promoted their stores through
advertising, in-store displays, and Internet terminals in the bookstores. Other synergies
would include the ability to ship books ordered online to the stores closest to customers for
added convenience, or deliver books directly from the retailers.
Recent Initiatives
Barnesandnoble.com has begun to acknowledge some of these mistakes, and in recent months
has aggressively sought new ways to differentiate itself, and leverage its real-world presence,
in the attempt to gain traction and build momentum. These include:
•
More effort is being focused on bringing the retailers in sync with barnesandnoble.com.
To signal its intentions, Barnesandnoble.com has changed its name to Barnes &
Noble.com, and the retailers have distributed more than 10 million bags promoting the
website and containing a coupon offering a discount on online purchases.
•
Barnesandnoble.com created a new cross-marketing genre in February 2000, when it
struck reciprocal marketing deals with Expedia.com, Jcrew.com, LLbean.com, 1-800Flowers.com, Petsmart.com, Planetrx.com and VitaminShoppe.com. Under the seven
separate agreements, Barnesandnoble.com offers links to each partner's site and a
discount for visitors who click-through. In return, each partner offers a similar link to
Barnesandnoble.com, with a similar discount. This broke new ground in web-marketing
relationships as no money is exchanged and no third party entity is involved.
•
Barnesandnoble.com's link to Bertelsmann AG, provides access to valuable resources,
content and distribution opportunities, as Bertelsmann's book division includes partners
such as Random House, and its BMG Entertainment division includes music giants Arista
Records and RCA Records.
•
In addition, Barnesandnoble.com has introduced new innovative features such as Barnes
& Noble Television (a web broadcast initiative that provides content and shopping via the
Internet), Barnes & Noble University (a free online education resource), and a same-day
delivery option in Manhattan.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.3.6 Conclusion
Although Barnesandnoble.com has been able to create a high impact and high-quality
customer experience, it has not been able to establish itself as the leading online bookseller.
Barnesandnoble.com's late start in 1997, meant that Amazon.com had made many of the
same moves a few years earlier and had a sizeable and loyal customer base, a wellestablished Internet brand, significant market momentum, and was further up the growth
curve. In addition, its failure to leverage its bricks-and-mortar stores to drive traffic to its
site, and its lack of innovation (by copying Amazon, feature for feature) has failed to
differentiate Barnesandnoble.com and has given them the image of a second rate 'me too'
brand.
The Press have also contributed, by portraying them as slow and clumsy in
comparison to the more nimble Amazon.com.
Although the decision to keep the online operations separate from the retail outlets freed the
start-up from bureaucracy and from charging sales tax, and allowed them to offer stock
options as compensation and achieve a high market capitalisation, it also caused a major
setback. The company failed to leverage its established brand, customer relationships and
offline presence - its key differentiating factors.
Barnesandnoble.com's experience is instructive.
Bricks-and-mortar stores looking to
translate their brand strength online must be willing to vigorously cross promote the two
ventures, even if that means eating into their existing sales, otherwise they risk losing out to
other online competitors. According to Goldman Sachs' Anthony Noto "If you have a brand
you shouldn't have to spend as much to build awareness, and you shouldn't have to start from
scratch when converting traditional shoppers to online shoppers57".
57
'Bn.com - Not a Best Seller' - Forbes, August 4, 2000 (www.forbes.com)
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.4
CASE STUDY: BOO.COM
6.4.1 Company Overview
Founded in 1999, Boo.com launched with the goal of being the world's "first truly online
retailer of sportswear and fashion", and was billed as one of Europe's hottest e-commerce
ventures. Boo.com had set the record as Europe's best-funded European Internet Start-up,
receiving $125 million of funding, arranged through J. P. Morgan, and included high profile
investors such as Bernard Arnault, Chairman of LVMH (owns Louis Vuitton and Christian
Dior) and 21 Investimenti (Benetton Group), among others.
After a high profile launch, the company was hindered by technical problems that delayed the
site going live by five months (until November 1999). On going live, Boo.com entered six
markets: US, England, Sweden, Finland, Germany and Denmark. They intended to add
France, Italy and Spain within a few months, and eventually debut in Asia, as well as create a
kid's site. However, within six months Boo.com collapsed through lack of funds, due to its
poor performance and inability to build a customer base, and the resulting loss of investors'
confidence.
TABLE 6.3
1999 Mid year
November
2000 January
February
May
BOO.COM - TIMELINE AND MAJOR MILESTONES
- Raises funding of $125 million
- Site goes live
- Multi-million pound advertising campaign created by BMP DDB
- First sign of problems - they redesign site, sack 20% of staff and sell stock at 40%
discount
- Announces it has only 500,000 unique visitors
- Appeals for $30 million more funding - fails and appoints KPMG as liquidator.
Company is put up for sale.
6.4.2 Value Proposition
According to Kajsa Leander, founder and Chief Marketing Officer of Boo.com, "our
marketing thrust is not based on prices, it's about range and convenience. If a clothing brand
is on the Boo site, it means all that brand's product line is available, not the limited range
you might get at most London fashion shops58". Boo.com provided a range of 18 fashion and
footwear brands including DKNY, Puma, Everlast, and Converse. They believed that the
limited launch of direct online sales operations by fashion brands left room to establish a
first-mover advantage and develop a market leading online fashion hypermarket.
58
Kajsa Leander, CMO of Boo.com, as cited in 'Boo.com opens its virtual doors' - Marketing Week, June 10, 1999
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.4.3 Sources of Value & The Failure of Boo.com
Their strategy was to design an innovative website with interactive graphics to appeal to both
sport and fashion enthusiasts. Visitors could search items by sport, brand, colour, price or
style, with the ability to rotate products and zoom-in on fabrics, stitching and colour. 3-D
product images were accessible in all colours and styles, ready to stock in a shopping cart and
mix-n-match on a rotating sex-specific mannequin. To transcend web shopping's impersonal
stigma, the company devised a personality called Miss Boo, an animated personal shopper
who guides site visitors and offers remarks (Figure 6.4). To build customer loyalty, they
established the Player's Club (or Leisure Lounge in the UK), a loyalty scheme to reward
frequent buyers, and developed 24-hour customer service teams in four world-wide offices.
Boo.com also published content in an online style magazine, including interactive games to
attract purchasers. All orders were to be delivered within 5 working days in Northern Europe
and the US from distribution centres in Munich, Germany and Louisville, Kentucky.
FIGURE 6.4 - OVERVIEW OF BOO.COM'S WEBSITE
Miss Boo
However, Boo made some fundamental mistakes. First, a large portion of its potential market
was unable to use boo.com's site because the website design (extensive graphics, pop-up
windows, 3-D images) was too advanced for most computers and access was frustratingly
slow. It required a high bandwidth Internet connection that was only available to 1% of
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
European surfers and 2% in the US59. In addition, the site was poorly structured and difficult
to navigate, and according to Jim McNiven, CEO of Kerb, an award winning web design
company, Boo.com was a "mish-mash when it when live............ it didn't seem obvious what
you were supposed to do60".
In January 2000, Boo redesigned its website to make it easier to navigate, and added a
version devoid of pop-up windows and graphics. The changes also gagged Miss Boo and a
paper catalogue was printed for those who want to buy offline. However, the early bad
experience and negative word-of-mouth scared off many online shoppers who lost confidence
as Boo.com had developed a reputation as a cumbersome and slow site, even though it had
become simpler and faster.
There were also fulfilment and customer service problems. Although customers received the
purchased items within a few days, many complained that they received the wrong items. In
addition, these 'mistakes' could not be corrected easily. Customers had to demand a refund,
and then re-order the items again. Obviously, once the money was refunded customers did
not risk going through the frustrating and inconvenient process again.
Besides these issues, there continues to remain a doubt whether the basis of Boo's value
proposition was compelling enough in the first place. First of all, prices were not discounted,
and secondly, an Internet alternative to real-world shopping for high fashion clothing, misses
many aspects that tend to be valued by Boo.com's target audience of the young and trendy
shoppers. Traditional fashion shopping provides sources of value through its social
experience and entertainment, whereby people enjoy wondering around shops, trying on
different styles, getting their friends' opinions, and the feeling and image associated with
walking into a high fashion store. Boo's value proposition failed to deal with these issues.
6.4.4 Brand-Building Strategy
Boo.com was quite successful in generating interest and creating awareness. The name was
chosen on the basis that it is "simple, catchy and easy to remember and spell61" and could be
trademarked in 56 countries. There was a lot of hype surrounding the start-up due to the
59
Torris, T., 'Boo.com: Fashion Site Must Overcome Own Hype' - Forrester Research, May 16, 2000
Ward, M., 'From Boo.com to Boo.gone' - BBC News Online, May 18, 2000 (news6.thdo.bbc.co.uk)
61
J. Herratti, Boo.com President for North America, as cited in 'Boo.com' - Sporting Goods Business, July 6,1999
60
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
amount of money invested in the company, and the high-profile investors involved. Boo
quickly burned cash on PR and advertising, spending $15 million on an advertising campaign
with BMP DDB, which received a mixed response. Adverts appeared on TV, cinemas and
magazines such as GQ, ESPN Magazine, Rolling Stone, Vogue, and Elle. Although they
attracted traffic, customers soon discovered the site's frustrating flaws, resulting in low
conversion rates, and with all the hype, negative word-of-mouth spread quickly.
6.4.5 Conclusion
Boo.com failed to provide a compelling value proposition, and did not focus on target
customer benefits. Instead of overhyping the convenience they offer, Internet companies
must remind themselves what customers miss about in-person shopping and compensate with
true added value. Boo.com also failed to address basic customer needs of a simple, easy-touse, quick-to-load site, and should have scaled back the technology to ensure as many people
as possible could browse the site. Instead, they focused on advertising the brand and not the
less glamorous, but vital, areas of brand-building, such as creating a positive end-to-end
customer experience and making each customer contact pleasurable and memorable, and
ensuring goods are available and delivered as promised. As a result, they were unable to build
a critical mass of buying members needed to generate revenue to offset the steep set-up costs.
Another important lesson is the need to be quick to market must be balanced against a
company's readiness. Boo was very ambitious to launch in six countries simultaneously,
without testing their business model. Unfortunately, this only served to increase set-up costs
as well as investors' expectations - both of which accelerated Boo's downfall as things started
to go wrong. As a result, Boo is 'branded' as the ultimate Internet failure.
Brand building includes all aspects of brand communications, including the brand impression
given by the implementation and experience. A poor brand experience on the first visit
drives potential customers to click off and not return, and also leads to a lack of confidence on
the part of employees (high-profile employees defected, including Dean Hawkins - finance
director) and investors, throwing everyone into panic, which reflected on all aspects of the
operations and eventually destroyed the business.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.5
CASE STUDY: CDNOW
6.5.1 Company Overview
Founded in 1994, by twin brothers Jason and Matt Olim, CDnow is the leading online music
store, and one of the most popular shopping sites on the Internet62. It has a customer base of
4 million people, and an average daily audience of over 800,000 people. CDnow provides
access to over 500,000 music-related products and 650,000 sound samples, as well as music
reviews, cover art, daily music news, features, guides to music genres, and exclusive
interviews and reviews from CDnow's award-winning editorial staff. CDnow is also driving
the digital distribution of music, and was the first site to offer the sale of music downloads
and custom CDs. On 19th July 2000, CDnow was acquired by Bertelsmann AG.
TABLE 6.4
CDNOW - TIMELINE AND MAJOR MILESTONES
1994 August
- Site goes live
- Partnership program with Geffen Records
1997 August
- Raises $10 million through private placement
- Forges distribution partnership with Yahoo!
1998 February
March
April
-
May
June
July
$65.6 million IPO
Launches integrated Grammy promotion
Signs content distribution partnership with Rolling Stone
Signs three-year, $18.5 million distribution deal with Lycos
Signs three-year, $22.5 million advertising deal with MTV
Enables customers to create customised CDs
Launches MTV / VH1 ad campaign
1999 March
May
July
- Merges with N2K, former arch rival
- Launches merged CDnow/N2K site
- Merges with Columbia Records
2000 June
July
- CDnow and Time Inc. announce marketing alliance
- CDnow is acquired by Bertelsmann and will become a wholly-owned subsidiary of
Bertelsmann e-Commerce Group (BeCG)
6.5.2 Value Proposition
CDnow offers consumers a high degree of choice (over 500,000 music related items - ten
times the selection of a conventional bricks-and-mortar music store), convenience, good
prices, customisation and a wealth of information and content to help in the purchase
decision. This unprecedented degree of access to music and information is the core of
CDnow's value proposition, and they aim to "make every visit to the site, whether for
browsing or buying, a valuable and rewarding experience"63.
62
Hoffman, D. & Novak, T., 'How to Acquire Customers on the Web' - Harvard Business Review, May-June
2000, pp.179-188
63
CDnow website (www.cdnow.com)
80
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.5.3 Sources of Value - The 7Cs Framework
Convenience
The CDnow site is very easy-to-navigate and quick-to-load. The whole process of searching
for albums or music titles to the actual purchase is simple - Figure 6.5.
FIGURE 6.5 - OVERVIEW OF CDNOW'S WEBSITE
Customisation
options
Simple, easy-tonavigate, and
quick-to-load pages
Interesting Content
Content
CDnow has invested substantially in developing strong content alliances, and has secured
rights to music reviews, artists biographies, cover art, etc., to make it easier for customers to
explore new music and make informed purchasing decisions.
For example, CDnow's
partnership with Rolling Stone Magazine enables customers to access thirty years of Rolling
Stone music coverage. CDnow has cultivated similar relationships with MTV, VH1 and
Media College (publisher of CMJ New Music Report and CMJ New Music Monthly). By
partnering with well-known content providers, CDnow has leveraged the reputation of their
brands to reinforce its own.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Customisation
CDnow provides customisation on two fronts. It allows customers to purchase customised
CDs and also enables customers to develop their own personalised view of the store through
My CDnow. By customising the store to meets customers' needs, it gives them a sense of
ownership and a compelling reason for them to return. Other features such as My CDnow's
Wish List, allow customers to keep track of albums to buy in the future. Customers can even
maintain an Address Book online making it easy to send music to friends and family (viral
marketing promoter). Personalisation helps to strengthen loyalty and deepen customers'
commitment to the brand. It also creates switching costs, for once the relationship starts to
develop and customers have entered numerous addresses into their Address Book, they will
be reluctant to visit another online store and enter the information again.
Community
CDnow has not exploited the potential of creating a community feel, and could consider
introducing customer reviews or set-up communities around different music genres such as a
Jazz Club or Classical Club offering members relevant content and the option to chat with
other club members.
Connectivity
CDnow has linked up with broad-based highly trafficked Internet sites - search engines,
Internet access providers, and key news and entertainment sites - such as AOL, Yahoo!,
Excite, and Geocities as well as more focused specialist sites. CDnow also started an
affiliate programme (called the Cosmic Credit Programme) that links other websites to its
site - from record labels to much smaller sites that discussed or reviewed music (supplying
valuable content). In addition, CDnow developed the Fast Forward Rewards programme, an
incentive programme that rewards customers and encourages them to connect back to the site.
Whenever a customer makes a purchase they earn Fast Forward Reward points, which
accumulate and can be spent on a variety of music-related products.
Customer Care
CDnow's site can be viewed in English, German, French, Spanish, Portuguese, Italian, Dutch
and Japanese. Due to International interest, CDnow hired a group of multilingual customer
service representatives to handle questions. CDnow has also developed feedback teams groups of customer service representatives with deep knowledge of certain musical subject
areas, allowing them to respond to detailed customer queries.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Communication
From the moment a customer opens an account, CDnow reaches out to its customers with
personalised e-mails from Jason Olim (CEO) and e-mail newsletters informing customer of
news and releases relevant to their preferences.
By keeping the brand in front of the
customer in this way, CDnow is doing everything it can to ensure that the next time that
customers buy music, they buy from CDnow.
6.5.4 Brand-Building Strategy
CDnow was one of the first companies to develop a multifaceted, integrated customer
acquisition strategy that reflects a sophisticated understanding of the economics of an online
business. CDnow's initiatives include:
•
Banner Ads - CDnow buys banner ads on the sites of major Internet content and service
providers including CNN Interactive and AOL, as well as more-targeted music-related
sites like Billboard.
•
Alliances and Partnerships - They have also stuck exclusive alliances with AOL,
Yahoo!, Excite and other powerful Internet content and service providers. These
alliances and partnerships have generated both traffic and brand visibility for CDnow and
have locked competitors out of valuable online real estate.
•
Affiliate Programme - Through the Cosmic Credit Programme, CDnow extended its
distribution reach to include more than 250,000 small, music-oriented websites, covering
the entire music spectrum.
According to Jason Olim, this is their "most successful
customer building programme64". It is a revenue-sharing arrangement, giving websites an
inducement to join the programme and in effect turns CDnow's affiliate-marketing
partners into a virtual commissioned salesforce.
•
Traditional offline Media - CDnow's advertisements are targeted to some degree,
including national television commercials during the Grammy's and American Music
Awards and on MTV and VH1, print advertising is music-related publications such as
Rolling Stone, Spin, and Variety, and radio spots on the Howard Stern Show to build a
cult following among radio listeners, and spot radio to build reach.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
•
Public Relations - CDnow made public relations a high priority brand-building tool.
Public relations efforts helped to generate word of mouth and influence sales. The story
of how CDnow was founded in a basement, by two twin brothers with little money
reflects the 'American dream' and was quickly picked up.
•
Word-of-Mouth - As for many successful online retailers, word-of-mouth accounts for
the lion's share of CDnow's customers.
It is a powerful source of acquiring new
customers at low cost. In fact, it is in this context that the large investments in advertising
and partnerships make sense, as a way to fuel very lucrative word of mouth, both in the
online and offline worlds.
CDnow's promotion strategies have attracted high levels of traffic, and combined with the
high quality customer experience (7Cs) they are successful in engaging and retaining
customers, resulting in increased conversion rates. This has contributed to a 225% increase
in sales (1997: $17.4 million, 1998: $56.4 million), and to increases in the customer base of
more than 30% quarter-to-quarter, with 44% of sales coming from new customers65. Their
ability to learn and relate to customer's needs through customising their offering (My
CDnow) encourages brand loyalty and repeat purchases, with repeat customers accounting for
more than 50% of sales.
6.5.5 Other Factors that Contribute to their Brand Leadership
Innovation & First-Mover Advantage
CDnow started early on the Internet (1994) and has been able to maintain momentum. The
company continually pushed for new distribution partnerships to widen its sphere of
influence, and scaled it awareness-building efforts. It is constantly adding new functionality
to the site and has been innovative in its offering - they were the first site to offer the sale of
music downloads and custom CDs.
64
'CDnow Launches Next Generation of Highly Successful Cosmic Credit Program' - Press Release, April 28,
1998 - (www.cdnow.com)
65
'Pioneering in Cyberspace' - Hampel & Stefanides (www.hsny.com/cdnow.htm)
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Customer Focus & Reputation for Excellence
According to Jason Olim, "your brand is not just what you say - it's what you do66", and the
company's goes to great lengths to ensure that its activities reinforce this view and it fulfils its
promises. The company sends an automated order confirmation note via e-mail as soon as
the order has been placed. This gives the customer the impression that the order is being
handled quickly. They also provide the customer with an order number and customer support
contact information should they have questions. CDnow has developed a relationship with
Valley Records, a record distributor that handles the majority of CDnow's fulfilment logistics,
to ensure quick delivery to customers.
6.5.6 Conclusion
CDnow identified a market opportunity early and moved quickly to capitalise on the potential
it saw. It was able to create a strong value proposition and high quality customer experience.
According to Jason Olim, "the most important customer loyalty tool is a great store67" and
CDnow has gone to great lengths to provide this, and ensure that it exploits its early-mover
advantage and keeps ahead of competition. It has developed a detailed understanding of its
customers' needs that has enabled the company to create better products and more effective
marketing campaigns.
The development of an extensive affiliate network, and innovative, well-targeted marketing
programmes both online and offline have driven large volumes of traffic to the site and have
exposed the brand to millions of potential customers. This, combined with the high impact
customer experience created - from how CDnow has personalised its product offering to its
capable customer service team - have been instrumental in building a reputation for
excellence that is a core factor of a successful Internet brand.
66
Jason Olim, CEO of CDnow, as cited in Carpenter, P, "eBrands - Building an Internet Business at Breakneck
Speed", (Boston: Harvard Business School Press), 2000 p.89
67
Jason Olim, CEO of CDnow, as cited in Carpenter, P, "eBrands - Building an Internet Business at Breakneck
Speed", (Boston: Harvard Business School Press), 2000 p.75
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.6
CASE STUDY: EBAY
6.6.1 Company Overview
eBay is the world's largest person-to-person online trading community and is one of the few
Internet companies that is profitable. eBay effectively created a new business model never
before possible - efficient one-to-one trading in an auction format. Individuals use eBay to
buy and sell items in more than 4,300 categories, from collectibles and antiques to electronics
and toys. Sellers pay a nominal fee for placing an item up for sale, and eBay receives a
transaction fee that ranges from 1.25% to 5% of the final sale price on any item sold. The
buyer and the seller work out the logistics of the transport (e.g. shipping, payment) between
themselves, and eBay never takes possession of the item being sold, or the payment for the
item - removing the need for inventory, transportation and other overhead costs.
Since its launch in September 1995, the eBay community has grown to include more than 10
million registered users, with the number of unique daily visitors setting a record of 1.782
million in January 200068. There are over half a million new auctions, and 450,000 new
items joining the "for sale" list every 24 hours69.
6.6.2 Value Proposition
eBay offers consumers an efficient, 24 hour a day, global trading place for buying and selling
personal items in an entertaining auction format. This is a new market - the closest thing in
the offline world are trading forums such as classified ads, collectable shows, garage sales,
flea markets and auctions. People perceive the auction format to offer better prices, and eBay
provides added value through its convenience, extensive selection and geographical reach,
with emphasis being placed on its unique community feel and culture. According to Meg
Whitman, CEO of eBay, "at its core, eBay is not about auctions. Auctions are an enabler.
Auctions make it fun. Auctions represent a platform. But eBay is really about a unique sense
of community that eBay users are creating for themselves70"
68
Media Metrix, as cited in 'eBay - Company Overview' - eBay website (www.ebay.com)
'eBay - Company Overview' - eBay website (www.ebay.com)
70
'Meg Whitman at eBay Inc. (A)' - A Harvard Business School Case Study, 1st October 1999
69
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
TABLE 6.5
EBAY -
TIMELINE AND MAJOR MILESTONES
1995 September
- eBay goes live
1998 January
- eBay exceeds 21 million online auction bids and completes more than 5 million
auctions since its inception in 1995
- eBay and First Auction sign a partnership agreement
- Launches "My eBay!" to customise the online auction experience
- eBay acquires Jump Inc. and its online trading site (Up4Sale)
- eBay IPOed raising $58 million
- eBay launches 'About Me' feature, allowing users to create personal homepages
May
July
September
October
1999 January
February
March
April
May
June
July
August
October
November
December
2000 February
March
May
June
July
- Compaq Computer Corporation and eBay form a strategic U.S. co-marketing
relationship.
- eBay expands strategic relationship with Netscape
- America Online and eBay announce strategic marketing alliance
- eBay acquires Butterfield & Butterfield; and raises $700 million
- eBay acquires Kruse International
- eBay acquires alando.de - Germany's leading online person-to-person trading site
- eBay introduces eBay Magazine in collaboration with Krause Publications, and two books -, The
Official eBay Guide to Buying, Selling, and Collecting Just About Anything and eBay for
Dummies.
- eBay teams up with Carclub.com to provide automotive service for eBay Users
- eBay and AOL launch co-branded site
- eBay goes wireless with Palm VII connected organiser
- eBay goes live in Australia
- eBay launches local websites in Baltimore & Washington DC, Boston, Las Vegas, Providence,
Nashville, Norfolk & Virginia Beach, Seattle & Tacoma, Milwaukee, Dallas & Fort Worth, and
Salt Lake City
- eBay acquires Blackthorne Software
-
GO.com and eBay announce multi-year strategic marketing agreement
eBay and NEC form a joint venture in Japan
eBay launches in Japan
eBay and Autotrader.com Create auction-style marketplace for used cars
eBay launches Business Exchange
eBay and Keen.com form exclusive three-year relationship
eBay and Wells Fargo launch electronic cheque as an alternative to credit card payments and
traditional cheques
- eBay and Ultimatebid.Com form alliance
6.6.3 Sources of Value - The 7Cs Framework
According to Meg Whitman, "the first brand-building strategy that we have is to have a great
customer experience. Still the vast majority of our new users come from word-of-mouth. And
you only get word-of-mouth if you have a great customer experience. So brand-building job
No. 1 is have a great customer experience71". Unlike the previous case studies discussed, the
eBay customer experience is based on how their customers deal with each other, as they
rarely deal directly with the company. This raises challenges in how to control and influence
the customer experience. Since eBay cannot control how one person treats another, they try
to influence customer behaviour by encouraging them to adopt certain values, and in terms of
the '7Cs', emphasis is placed on community development and customer care.
71
Interview with Meg Whitman by Linda Himelstein as cited in 'What's Behind the Boom at eBay' - Business
Week, 21st May 1999 (www.businessweek.com)
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Convenience
The site enables sellers to list items for sale and buyers to bid on items of interest using
eBay's fully automated, topically arranged, easy-to-use online service (Figure 6.6). eBay has
also expanded to accommodate access through wireless devices for added convenience.
FIGURE 6.6 - OVERVIEW OF EBAY'S WEBSITE
Customisation
Simple, categorically
arranged, and easyto-use site allowing
multiple options for
browsing
Added convenience
and sense of
community through
option of focusing on
local area
Unlike most websites that simply post content, eBay's site has to process thousands of live
bids simultaneously, which is much more demanding on the system, increasing the risk of
outages. eBay had a 'wake up call' when the website crashed for 8 hours, angering hundreds
of thousands of eBay users, and since, they have continually invested in system capacity.
Nevertheless, they continue to face challenges in scaling-up fast enough to accommodate
their rapid growth.
Content
Content is primarily user generated through the items listed for sale. This contributes to the
community feel, and adds to the experience and the discovery of the auction process. Other
content includes the banner ads, which are narrowly targeted on relevant subjects such
shipping and transport companies and payment methods to aid users.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Customisation
eBay provides My eBay which allows users to customise the interface, and is considered by
many users as one of the best features on the website. They also provide the ability for users
to create their own home page free-of-charge through the About Me feature (which promotes
a viral effect).
Community
eBay attributes much of its success to a strong sense of community among its users. For
many 'eBayers' - as eBay users refer to themselves - eBay represents more than just a place to
buy and sell goods. It is a place where people can meet with similar interests, discuss topics
they care about, and share information. To encourage this sense of community, eBay offers
its users category-specific chat rooms, bulletin boards, a monthly newsletter, e-mail, a
"giving-board" for charitable donations to user-identified causes. In addition, the community
spirit and personal relationships also transcend the online experience, and there are several
reports of eBay users vacationing together, working together and helping each other offline.
eBay's community has a distinct culture based on trust, respect, autonomy, empowerment and
equality. Whitman describes eBay's community culture as a site "of the people, by the
people, for the people". However, the culture has come under strain due to the company's
rapid growth from a small community into a "big city". Recent initiatives such as the
development of local websites in major US cities (e.g. eBay Boston, eBay Salt Lake City)
have helped them restore that community feel, while adding value by providing users' with
the ability to source items located close-by and browse through items of local interest.
After a sale, each user is encouraged to submit feedback through eBay's 'Feedback Forum',
which is then added to the partner's trading profile, which is posted to the site. This has
created a self-regulating mechanism that encourages good behaviour, and in doing so, has
enabled eBay to foster a strong sense of community on its site. This sense of community is
their key differentiating factor and has encouraged greater loyalty and repeat usage.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Connectivity
eBay has created an affiliate network, links to high traffic sites, banner ads and links to
supporting services such as payment options and transport companies to help customers coordinate the logistics. eBay also engaged in marketing partnerships, the largest of which was
with AOL, but they have other partnerships with over 150 websites of varying scales. They
also introduced a PowerSellers Programme (loyalty scheme) which gives special benefits and
privileges to heavy users.
Customer Care
eBay controls neither end of the transaction, and the users' experience on eBay is more driven
by the seller or buyer than by eBay itself. As such, eBay has invested in customer care and
support to ensure people conduct safe transactions. eBay's approach to customer care has
evolved over time. During the first two years, eBay employed a "remote" customer support
model, in which the company hired active, knowledgeable, and respected members of its own
user community to serve as customer support representatives. These people worked from
their homes, answering e-mails and responding to questions posted on the site's bulletin
boards. By using its own enthusiastic, geographically dispersed users as customer support
representatives, eBay was able to cost-effectively offer 24x7 customer support early on. This
also reinforced the company's respect for, and willingness to empower, its user community.
This was later expanded to include customer support representatives who worked out of
eBay's headquarters, and the introduction of two specialised customer support groups - the
Community Watch group, which was dedicated to monitoring the site for illegal and
infringing activities, and the Safe Harbour group, which was dedicated to investigating
misuses of the system (e.g. fraud, shill bidding) and helping to resolve user-to-user conflicts.
Customer support activities were constantly upgraded and expanded as the business
developed.
Communication
eBay maintains close communication with its members. They encourage members to take
active role in the site and to provide feedback and advise them of and problems through the
Feedback Forum.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.6.4 Brand-Building Strategy
The majority of eBay's users have been attracted through word-of-mouth, as a result of the
high quality experience it provides.
Early on, eBay identified that 20% of the users
represented 80% of the volume of the site (80/20 rule). Based on this, they decided to target
their marketing efforts on these heavy users, who tended to be serious collectors. As a result,
eBay decided that it would not enter into major portal advertising deals in the short term, and
instead focus on grassroots marketing initiatives through print advertising in vertical
publications (e.g. Mary Beth's Beanie World, Doll Collector) and appearance in trade shows.
They appeared at over 90 collector trade shows and ran 14 different adverts in 90 vertical
publications during 1998. eBay intends to use these same marketing levers as they expand
across different categories of merchandise as well as expand internationally. In 1998, they
spent $12.3 million in advertising, representing about 40% of revenues, and maintained the
same ratio for 1999.
eBay has since expanded its promotion efforts and engaged in marketing partnerships, the
largest of which was with AOL, but they have other partnerships with over 150 websites of
varying scales. The AOL partnership was one of the largest strategic partnerships on the
Internet - a four-year, $75 million joint marketing alliance and development deal, whereby
eBay is the exclusive auction site featured on AOL and will jointly develop auction sites for
AOL's flagship online service and all AOL's other properties.
With the acquisition of Butterfield & Butterfield (one of the world's oldest and most
prestigious auction houses) and Kruse International (auctioneer of collector automobiles) in
1999, eBay transformed from a pure online play into a 'clicks-and-mortar' company. These
acquisitions further expanded their appeal to a wider market (those interested in higher priced
items) while providing added revenue due to higher margins.
Recent promotional initiatives include its new publication, eBay Magazine, and two books,
The Official eBay Guide to Buying, Selling, and Collecting Just About Anything and eBay for
Dummies. These new publications appeal to the collecting spirit, provide a wealth of
information about the 'ins and outs' of trading on eBay, and highlight opportunities created by
e-commerce. Through this combination of its advertising efforts and targeted promotions,
eBay has been able to attract a large customer base, and facilitate the spread of positive wordof-mouth.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
eBay has continually added new features and services to its offering in order to provide added
value to build relationships and facilitate customer 'lock-in'. This is achieved by listening to
their community (learning) and developing new improved products and services (relating),
such as the Feedback Form, the Personal Shopper and the eBay Life Newsletter, which were
all ideas of eBay users. However, eBay have a policy of not looking at users pattern of
buying habits for the purpose of generating products on offer for customers. This has become
part of the eBay culture, and according to research carried out by eBay, is one of the factors
that users value most as they are not provided with junk mail and intrusive offers in a
aggressive way. eBay prefers the opt-in model whereby users have the option to choose such
services if they were interested.
6.6.5 Conclusion
eBay's compelling value proposition, their ability to create a new market using Internet
technology, and their first-mover advantage, have been key factors that have contributed to
the success of the brand, however, their ability to cultivate a distinct 'sense of community' has
been the defining characteristic which differentiates them from other online auctions. As a
result, eBay attracts a broader selection of buyers, which in turn attracts more sellers - the
ultimate network effect - contributing to its strong lead and competitive advantage. Their
focus on heavy users and targeted promotions, have been instrumental in building a 'quality'
customer base, which has established eBay above other online auction communities. eBay
has also faced difficult challenges in scaling the organisation fast enough, as they could not
opt for a 'go slow' strategy. The need to continually invest in ensuring adequate capacity and
improving the product offering is essential in order to keep ahead of competitors, and
according to Meg Whitman, "the devil in so much of this is in the detail. And while we have
to move very, very fast, I think you are not well served by moving incredibly rapidly and not
doing things well72".
72
Interview with Meg Whitman by Linda Himelstein as cited in 'What's Behind the Boom at eBay' - Business
Week, 21st May 1999 (www.businessweek.com)
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.7
CASE STUDY: GAP.COM
6.7.1 Company Overview
Gap opened its first store in San Francisco in 1969, and today it is the 29th most valuable
brand in the world73. The Gap offers a balance of modern and seasonal styles of clothing,
from jeans and T-shirts to khakis and jackets. Its reach extends across more than 1,800 stores
in the US, Canada, UK, Germany and Japan. This success is largely due to their simple
formula - "to deliver style, service and value to everyone74". In late 1997, Gap started selling
items online - an early convert to the then-revolutionary idea of clothes retailing on the
Internet. Currently, online sales are only available to US customers, and are still relatively
small compared to Gap's $9 billion in annual sales, however, the growth prospects are
enormous. Gap's online sales tripled in 1998 alone, and analysts estimate that sales in 1999
amounted to $50 - $100 million, up from $20 million in 199875. Gap.com is an example of
successful crossover marketing, and provides useful insight into how traditional brands can
leverage their strength online.
TABLE 6.6
1969
1986
1989
1997
1998
-
1999
-
GAP & GAP.COM - TIMELINE AND MAJOR MILESTONES
The first Gap store opens in San Francisco, California
GapKids opens its first store
BabyGap is born
Gap opens its online store at www.gap.com to make shopping even easier for US customers
GapKids and BabyGap launch their online stores at www.gapkids.com and www.babygap.com.
Gap Inc. surpasses $9 billion in net sales and increase earnings by 54% over previous year.
America Online (AOL) and Gap Inc. announce multi-year partnership.
6.7.2 Value Proposition
Gap's simple, standard styles are well suited to online shopping, and Gap online provides
access to the full range of items at Gap, GapKids, and BabyGap, from shirts to accessories
and hard-to-find sizes. In addition, Gap online exploits the accessibility and convenience of
the Internet, to provide customers with greater convenience and options. According to
Jeanne Jackson, head of Gap Online, "this is about being clicks-and-mortar, letting customers
access the Gap brands, whether in the store or online76".
73
Interbrand (www.interbrand.com) - see Appendix A
Gap, Inc.'s website (www.gapinc.com/about_us.htm)
75
Jeanne Jackson, as cited in Lee, L. 'Clicks and Mortar at Gap.com' - Business Week, October 8, 1999
76
Jeanne Jackson, as cited in Lee, L. 'Clicks and Mortar at Gap.com' - Business Week, October 8, 1999
74
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.7.3 Sources of Value - The 7Cs Framework
In terms of the 7Cs framework, Gap Online primarily focuses on Convenience, Content, and
Customer Care.
Unlike Barnesandnoble.com, the extensive integration of Gap's online and offline activities
are clearly evident. Visiting the gap.com store one immediately notices the consistency
between the online and retail stores, from the blue and white colour scheme to the easy-toshop format - making visual references to its offline roots. Michael McCadden, Executive
Vice President of Global Marketing, describes the company's brand personality as "direct and
straightforward........very easy, very efficient"77. This personality is reinforced online through
the simple structure and layout, making it convenient, and easy-to-use. The site also offers
sharp graphics, but provides customers with the option of viewing text-only, making
navigation even faster.
FIGURE 6.7 - OVERVIEW OF GAP'S WEBSITE
Immediate customer
recognition
The look, feel and
design of the site is
consistent with the
bricks-and-mortar
stores, reinforcing
its brand identity.
Simple, easy-to-use
site with option to
view text-only (no
graphics) to allow
quick loading
77
Hill, D., 'Mind the Gap', The Observer, April 18, 1998
94
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Gap.com's content consists of detailed information on its full range of products, allowing
shoppers to contrast different cuts and styles. The site's virtual style feature also allows
customers to mix-and-match combinations of clothing, and customers can view their latest
TV adverts for buying inspiration, as well as sample all of the latest shades of fingernail
polish on a virtual hand, which would not be possible in the store.
Unlike the case of Boo.com, Gap's simple, standard styles are well suited to online clothes
shopping, and goods bought online get returned at the same rate as store purchases - as most
Gap online shoppers have a good idea of how Gap clothes fit.
In order to integrate its offline and online operations and logistics, Gap made a decision to
charge sales tax on online sales. By doing so, customers can return goods purchased online
to their neighbourhood store, without causing complications. This level of customer care is
an important factor in making customers feel more comfortable with online purchasing. In
addition, Gap.com allows customers to track the status of online purchases and provides
contact information on the nearest store.
Gap does not provide any community features on its site. However, once customers are
registered online, Gap communicates with customers through customised e-mails, twice a
month, promoting its specials and including links directly to items on Gap's website.
Gap.com also provides a Gift Central feature which offers gift suggestion from Gap,
GapKids, and BabyGap, and customers can register to get e-mail reminders of upcoming
holidays and birthdays.
The Gap site connects to other Gap online stores including GapKids and BabyGap. Gap has
also developed an affiliate programme, and had recently established marketing deals with
AOL and CDnow.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.7.4 Brand-Building Strategy - Extensive Integration
Gap.com has been able to piggy-back on The Gap's offline advertisements (in TV,
Magazines, billboards, etc.) that also promote the online store.
In addition, it is fully
leveraging its offline presence to build awareness, by displaying the URL (www.gap.com) in
store windows with the slogan "surf.shop.ship", on counter cards, on shopping bags and even
on the cash register, which displays "Shop online at www.gap.com" on the display screens
between transactions.
Store clerks are also trained to look for products online for their customers if the store does
not have them in stock, or to refer shoppers to Gap's website. In certain high traffic Gap and
GapKids stores, the retailer has installed "Web lounges" that lure buyers with comfortable
couches and terminals hooked up to Gap.com.
To convert walk-in shoppers to
cybershoppers, Gap has held in-store campaigns to get customers to submit their e-mail
addresses, by offering a 10% discount and free shipping on their first online purchase. These
efforts doubled the size of Gap's e-mail database, providing a useful way to directly reach
customers.
Most of Gap's online traffic is generated by leveraging its physical presence, however, Gap
has also supplemented this with online promotions:
•
In August 1999, Gap secured a 3-year commerce and marketing agreement with AOL,
that gives Gap more visibility on the Internet by linking to the world's largest online
shopping destination: Shop@AOL marketplace.
•
Gap.com has links with CDnow to cross promote websites. The idea emerged as Gap
was flooded with e-mails form customers asking how they could buy a recording of the
music played in Gap TV commercials.
•
Gap.com has also created an affiliate programme encouraging sites to establish links to
gap.com in return for a 5% commission on every sale referred through the site.
•
They offer Online discounts and promotions such as the ShopCard, whereby for every
$100 a customer spends at Gap Online, they send the customer a $20 Gap ShopCard,
which can be used towards future purchases, either online or in stores.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.7.5 Conclusion
Gap.com is an example of successful crossover marketing. With their brand awareness and
network of retail outlets, Gap had a significant advantage over pure online players in
attracting customers and building critical mass. Pure online players have to invest heavily in
logistics, whereas established companies, such as Gap, have already established the back-end
operations and can use them as the cornerstone of their online business. The Internet, on the
other hand, provides existing customers with added value through the convenience of
purchasing online, and can also provide access to different customer segments who may not
usually buy the products at all - thereby increasing the company's reach. By aggressively
marketing both the stores and the website, and allowing each to leverage the strengths of the
other, Gap has been able to significantly strengthen their brand-customer relationship, while
reaping the benefits of low customer acquisition costs and extended reach. A key factor has
been Gap's consistency and ability to deliver the same level of service quality that is expected
from the brand, thereby reinforcing its brand identity. This type of seamless integration and
symbiotic relationship is critical in building successful 'clicks-and-mortar' brands.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.8
CASE STUDY: YAHOO!
6.8.1 Company Overview
In April 1994, Yahoo! was founded by David Filo and Jerry Yang, two Ph.D students at
Stanford University, who started an online guide as a way to keep track of their personal
interests on the Internet. The concept exploded (through word-of-mouth) and in less than six
months, the site was receiving 1 million hits per day. Yahoo! has since morphed from an
ordinary search service into a global Internet communications, commerce and media
company that offers a comprehensive branded network of services and information to more
than 145 million individuals each month world-wide, and is one of the few Internet
companies to turn a profit early in the development of the Internet.
As the first online navigational guide to the web, Yahoo! is a leading guide in terms of traffic,
advertising, household and business user reach. Yahoo! is one of the most recognised brands
on the Internet and is the 53rd most valuable brand in the world78. The company's global web
network includes 23 world properties outside the US.
6.8.2 Value Proposition
At the core of Yahoo!'s value proposition, lies the directory - a hand tailored and easy-to-use
guide to the Internet that becomes more useful each day as Internet penetration, the amount of
information, and the number of websites continues to explode.
According to Timothy
Koogle, CEO of Yahoo!, "We've set out to make Yahoo! the only place anyone needs to go to
get connected to anything. There's nothing in the real world to compare to that79". As such,
Yahoo! offers a range of supporting services that add value, from e-mail services to stock
quotes and much more, all in a single location.
78
79
Interbrand (www.interbrand.com) - see Appendix A
'Yahoo! - The Company, The Strategy, The Stock' - Business Week, September 7, 1998 (www.businessweek.com)
98
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
TABLE 6.7
YAHOO! - TIMELINE AND MAJOR MILESTONES
1994 April
- Site goes live
September - Traffic reaches 1 million hits per day
1995 April
- Receives $1 million in venture capital funding from Sequoia Capital
1996 April
July
September
October
-
$33.8 million IPO (2,600,000 shares at $13.00 per share)
Launches My Yahoo! (allowing customisation of site)
Launches Yahoo! UK & Ireland
Launches Yahoo! France and Yahoo! Germany
1997 January
February
October
October
October
December
-
Launches Yahoo! Chat
Launches Yahoo! Classifieds
Secures distribution agreement with Compaq
Acquires Four11
Secures Distribution agreement with Gateway
Launches Yahoo! Sports
1998 April
May
June
September
October
November
-
Launches Yahoo! Computers
Cross-marketing with AT&T
Acquires Viaweb; Launches Yahoo! Real Estate
Opens Yahoo! Auctions
Acquires Yoyodyne
Launches Yahoo! Shopping (offering more than 2 million products)
1999 January
January
January
March
April
June
July
August
September
-
Secures distribution agreement with Hewlett-Packard
Signs distribution agreement with IBM
Acquires Geocities
Secures distribution on PagerNet pagers
Acquires Broadcast.com; Launches Yahoo! Radio
Acquires Online Anywhere
Launches Yahoo! Resumes
Introduces free e-greetings, and unveils Yahoo! Digital
Introduces Bill Payment services
2000 March
- Yahoo! forms agreements with Palm Inc., to provide web-based services to PalmTM
handheld computers
- Yahoo! unveils Yahoo! Finance Vision
- Yahoo! acquires Arthas.com allowing them to offer person-person payment solutions
- Yahoo! Launches Business-to-Business Marketplace
- Yahoo! launches the next wave of Yahoo! Everywhere service for consumers with
Internet-ready mobile phones and wireless devices.
- Yahoo! acquires eGroups
- Yahoo! Shopping launches personalised shopping service
March
March
March
May
June
July
6.8.3 Sources of Value - The 7Cs Framework
Convenience
Central to Yahoo!'s success, is the way it has structured and displayed information. Their goal
is not to list everything under the sun, but instead to be selective and to display the best the
web has to offer in a hierarchical framework that makes sense to customers. They have kept
the design of the site simple and clean to appeal to customers and avoid slow-to-load graphics
(Figure 6.8). More recently, Yahoo! extended its convenience through its Yahoo! Everywhere
service, to allow access, regardless of platform (i.e. mobiles, TVs, Palm computers).
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 6.8 - OVERVIEW OF YAHOO!'S WEBSITE
Customisation
options
Simple, well
structured, easy-touse, and quick-toload webpages
Important contact
point to search
information on any
subject
Content
Yahoo! has pursued a broad range of deals with content and commerce companies. These
have helped Yahoo! become the place to track down a broad range of valuable information
and resources, ranging from daily news and weather reports to road maps and books, and has
been at the heart of Yahoo!'s growth and development. They have formed multiple alliances
and partnerships with leading online companies such as Amazon.com and CDnow. Their
thrust has been to provide valuable content to customers, while providing partners access to a
large customer base. This creates a win-win situation as its satisfies Yahoo!, the partner, and
more importantly, the end-user.
Customisation
My Yahoo! allows surfers to customise their view of Yahoo! and pick favourite topics, from
stocks and sports results to weather and air fares, and is similar to a custom tailored
newspaper (Figure 6.9). By tailoring the information to users' preferences, Yahoo! has
increased customer loyalty and retention rates.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
FIGURE 6.9 - OVERVIEW OF MY YAHOO!
Instant name
recognition
Customer's preferred
categories of news
and information
Customisation is a
'sticky' application.
It keeps customers
on the site for longer
periods, and
encourages them to
return frequently.
Community
Yahoo! has developed customisable web communities called Yahoo! Clubs, where groups of
people with shared interests can communicate through chat, message boards, and e-mail. In
1999, Yahoo! acquired GeoCities, (one of the largest online communities) which provides
easy-to-use and innovative tools to allow users to publish content on the site. Yahoo!'s recent
acquisition of eGroups (an e-mail group communication service) will provide consumers with
powerful new ways of communicating one-to-one, one-to-many, and many-to-many.
Connectivity
Connectivity is Yahoo!'s core product, and the nature of the navigation business, and is
driving Yahoo!'s multiple partnerships and alliances, to provide its customer base with access
to useful links and content. In addition, Yahoo! has also implemented campaigns to persuade
users to bookmark the site, or to make it their home page.
Customer Care
Yahoo! responds to customer inquiries via e-mail, fax, telephone and even traditional mail,
and plans to incorporate other features such as online chat to facilitate communications.
Yahoo! spends more on customer support than most companies, reinforcing the brandcustomer relationship, and contributing to their reputation as a quality service provider.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
Communication
By positioning itself as a site that users frequent often, and through communications via email, Yahoo! maintains close contact with customers. Yahoo! also encourages customers to
e-mail ideas and feedback.
6.8.4 Brand-Building Strategy
Yahoo! is a marketing machine. It is often highly praised for its brand-building ability and
promotion strategies through the use of traditional (offline) media and guerrilla marketing
techniques to build awareness, and according to Intelliquest80, 82% of Internet users and 23%
of people intending to go online, recognise the name Yahoo!.
Yahoo!'s brand-building success starts with its name, and its implications of a good time.
Given the unease with which the average consumer approaches technology, Yahoo! avoided
characterising itself as a technology-oriented company, and the company has always
communicated the utility of its service in a way that reinforces other core brand attributes - a
sense of irreverence, an approachable nature, and an inherent friendliness.
While Internet companies were targeting existing Internet users through the use of online
promotion methods, Yahoo! extended beyond this to use traditional offline media. At the
time this was considered a breakthrough, and it formed a critical link in Yahoo!'s brandbuilding strategy. Their strategy was to target "near surfers" - people who are not yet online
but are likely to use the Internet in the near future. These near surfers represented (and still
do) a large and fast growing group and, therefore, by building a recognised brand name,
Yahoo! would be one of the first sites that they visited. This was especially important, as
experience surfers tend to be loyal to their search engine. As a result, Yahoo! aggressively
promoted the site through public relations, TV commercials and radio spots during drive
time. In 1996, they hired Black Rocket to create a brand awareness campaign that became
very successful through the development of the tag line "Do You Yahoo!?", which conveyed
the brand's irreverent personality.
80
'Web Survey Shows Yahoo! Tops', Intelliquest, (www.intelliquest.com)
102
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
In addition, Yahoo! adopted 'guerrilla marketing' techniques - with its name being plastered
on everything, from the Zamboni ice-shaving machine of the San Jose Sharks (Ice Hockey
Team) to over 120 products, including backpacks, T-shirts, organisers, breath mints,
parachutes, snowboards, sailboats, and yo-yos, as well as TV shows (Ally McBeal, ER) and
Hollywood movies. They even have a barter deal with the San Francisco 49ers, which has
fans screaming Yahoo! to cheer their team as the Yahoo!'s logo flashes across the football
stadium screen. They also teamed up with publisher Ziff-Davis Co. to create Yahoo! Internet
Life, a monthly magazine guide to what's new on the web and it has co-branded products,
services and contests with well known brands such as Ben & Jerry's, Visa and MCI.
Yahoo! has paid little for this exposure, which has been instrumental in establishing Yahoo!
as a household name. Although this seems like a shotgun approach, it is in fact a carefully
orchestrated campaign that requires each branding opportunity to meet one strict test - it must
reinforce the image of the company as 'a service that is fun, a little wacky and inviting'.
Once customers access the site, customers quickly discover its value and through a high
quality experience (7Cs), Yahoo! has managed to cultivate high brand loyalty. According to
a recent study, 92% of Yahoo! users rate the service as "excellent" or "very good" which is
significantly higher than those of other sites, and 76% turned to Yahoo! before visiting
another search engine or navigational site. In addition, the research shows that 73% of
Yahoo! users bookmark the service - higher than all other services81.
According to Karen Edwards, VP-Brand Marketing, Yahoo's ability to quickly pick up on
users interests has been a key factor contributing to their success, stating that "if we wait to
hear about it in the news, it's too late. We need to be one step ahead in order to have a better
service than our competition82". Their innovation, new services and customised features
highlight their ability to relate to customers' needs.
81
'NPD Findings Show Yahoo! Ranked Highest in User Opinion' - Yahoo! Press Release, August 26, 1997
(www.yahoo.com)
82
'Yahoo! Forges Strong Brand While Adding Meaty Content' - Advertising Age, May 3, 1999, p. s4
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
6.8.5 Other Factors that Contribute to their Brand Leadership
Innovation & First-Mover Advantage
Yahoo! was first to market with a detailed search engine, first to go public, first to turn
around an annual profit, and first to go mainstream by advertising its name using traditional
media. To maintain its lead, Yahoo! has invested relentlessly in new services and marketing
programmes, that have set it apart from the pack. In addition, they have carried out extensive
partnering, alliances and acquisitions to provide added value services to their customers,
while attracting new customers.
Customer Focus & Reputation for Excellence
Yahoo! has kept close tabs on the evolution of the market and the interests of its customers,
and has cultivated a reputation for excellence, from its convenient and logical structure and
display of information, to its simple design, its excellent customer service, its choice of
partners, and its openness (for example, if a user cannot find what it is searching for, Yahoo!
points them to its competitors by including links to AltaVista, HotBot, GoTo.com, and other
search engines at the bottom of its search results page).
6.8.6 Conclusion
Yahoo! is one of the most successful brands on the Internet. As the first online navigational
guide to the web, Yahoo! has benefited from a first-mover advantage. They have maintained
that lead through the creation of a high quality end-to-end customer experience. This has
been achieved through their relentless investment into new services and extensive
partnerships and alliances with leading brands. These relationships have provided end-users
with added-value, while also associating Yahoo! with well known brands. Yahoo!'s intense
focus on customer's needs and high quality online experience has been instrumental in
cultivating a reputation for excellence. In addition, their innovative promotional and guerrilla
marketing techniques, have created a distinct brand identity that differentiates the brand and
appeals to its target market. As a result of all these factors, Yahoo! has built a strong brand,
with a large customer base and high levels of customer loyalty. The essence of Yahoo!'s
brand-building strategy is highlighted in a simple statement made by Karen Edwards, VPBrand Marketing of Yahoo!, "we've really focused our marketing efforts on attracting new
users and providing an experience that makes them stay83".
83
'Yahoo! Forges Strong Brand While Adding Meaty Content' - Advertising Age, May 3, 1999, p. s4
104
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
CHAPTER 7
CONCLUSION
105
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
7.1
CONCLUSION & DISCUSSION OF KEY FINDINGS
This dissertation set out to explore how the Internet is changing the brand-building
environment, in order to identify the new sources of value, the new brand-building tools and
strategies, and to outline the key factors that contribute to the development of a successful
online brand.
With power shifting to customers, the success of an online brand is largely determined by
customer choice. The repeated choice of a certain brand by customers and business partners
generates the transactions and repeat business that counterbalances the costs of customer
acquisition and infrastructure. Repeat transactions provide the basis for a relationship that,
when properly cultivated, creates value for both the company and its customers.
This
relationship is the basis for the customer loyalty that creates a successful online brand.
The companies that are successfully building relationships and fostering brand loyalty are
those that recognise that their brand's perceived value hinges on the total end-to-end customer
experience, from the promises made in the value proposition, to its delivery to the customer.
It is about enticing customers, gaining their trust, and making the experience so satisfying that
they are confident in their choice and will return again, and will tell others about it. It aims to
create "apostles", instead of "terrorists". As such, brand-building on the Internet extends
beyond the traditional focus of positioning, advertising, promotions, catchy logos and slogans,
to creating a business that can deliver complete, and completely satisfying, experiences.
As outlined in Chapter 5, the tools for building an online brand include the 7Cs Framework
(Convenience, Content, Customisation, Community, Connectivity, Customer Care and
Communication), and the Interactive Brand-Building Model (Attract, Engage, Retain,
Learn, and Relate). These frameworks highlight the key components and sources of addedvalue for developing a high quality experience, and the process of building a customer base
and nurturing brand loyalty. The case studies provided a useful and practical insight into the
application of these tools.
As such, the next section concludes the dissertation with a
discussion of the key factors that contribute to building a successful online brand.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
7.1.1 KEY FACTORS THAT CONTRIBUTE TO BUILDING A SUCCESSFUL ONLINE BRAND
There is no one-size-fits-all solution for building a successful brand on the Internet, however,
the extensive research and in-depth case studies provided in this dissertation indicate certain
common underlying characteristics which can be summarised as follows:
•
A Compelling Value Proposition
Successful online brands are exploiting every capability offered by the Internet to deliver
compelling value propositions that appeal to customers, by offering more value than
attainable through traditional 'bricks-and-mortar' establishments.
They are providing
greater convenience (24x7), lower prices, wider selections, and access to more
information on the products or services being provided, and enhancing this with layers of
added-value through the '7Cs' - Convenience, Content, Customisation, Community,
Connectivity, Customer Care and Communication. Successful brands recognise that the
value proposition must more than compensate for the loss of in-person contact.
•
A High Quality Online Experience
Strong Internet brands are those that create a high quality engaging online customer
experience.
The 7Cs framework allows companies to deliver a tangible customer
experience. Successful online brands meet the demands inherent in each of the 7C
categories, by ingraining convenience and making the site easy-to-use, quick-to-load and
easy-to-navigate, delivering compelling content, customising the experience, developing a
community feel, making connectivity easy, integrating customer care, and establishing
two-way communication. By placing emphasis on different 'Cs', they are differentiating
their experience from those of competitors. A well executed customer experience that
satisfies customers, results in higher brand equity.
•
A Reputation for Excellence (Delivering on their e-Promises)
Fulfilment and delivering on e-promises is the acid test of online brands. The successful
brands are those who are investing heavily in logistics, distribution centres, and customer
care to ensure a completely satisfying end-to-end customer experience. In doing so, they
are cultivating a reputation for excellence, which builds confidence and trust that not only
entices customers to do repeat business with the company, but leads them to spread
positive word-of-mouth, attracting other customers to the site.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
•
Strong Communications Programme & Efficient Customer Acquisition Strategy
The key Internet brands have made major commitments to building awareness and have
developed multifaceted, integrated customer acquisition strategies, ranging from online
methods to traditional offline media. They are targeting their promotions to attract quality
customers and to keep customer acquisition costs down. Quality customers who are heavy
users of the brand are important as they not only offset the cost of customer acquisition,
but also provide added value to the brand community. Properly orchestrated 'guerrilla
marketing' ploys can also be effective in building awareness and reinforcing brand image.
•
Unique Positioning Concept & Distinct Brand Image
Strong brands are developing unique positioning concepts, to distinguish themselves from
competitors. Yahoo!'s success can be largely attributed to its unique positioning strategy
and distinct image that appeals to its target market. By distinguishing their offering and
focusing on unique sources of value-added, brands are harder for competitors to emulate.
In addition, these companies must have an inherent understanding of their brand identity
and core values, to maintain consistency, as well as determine how far the brand can be
meaningfully stretched to other products and market segments, before it fractures.
•
Strong Partnerships and Strategic Alliances
Rather than doing everything on their own, leading brands have focused on building
strong partnerships and alliances, particularly to secure content and widen reach to new
customer segments and niches. As a result, these companies are creating even stronger
value propositions, offering customers the best in quality, variety, content, and
convenience. Alliances and partnerships play an important role in achieving speed and
momentum, and by partnering with well-known brands, a company can leverage the
partner's brand and reputation to reinforce its own. Alliances with leading portals and
popular sites is important to generate traffic and brand visibility, and exclusive alliances
can lock out competitors from valuable content or online real estate. The most successful
partnerships are symbiotic matches, whereby each party benefits from the other's
expertise or skills, while ultimately benefiting the end-customers.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
•
Intense Customer Focus
Leading online brands have an intense customer focus, and develop a detailed
understanding of their customers' needs. These brands are accumulating knowledge about
customers, through past transactions and solicited input, and by focusing on customer
needs, are leveraging this customer knowledge (learning) to nurture relationships (relate),
by providing better services, customisation and customer care. Customer focus builds
trust and credibility that is central to developing a strong brand-customer relationship.
•
First-Mover & Early-Mover Advantage
Most of the successful online brands identified a market opportunity early and moved
quickly to capitalise on the potential they saw. A first-mover advantage is an important
asset for an online brand. By getting to market early, the company benefits from the
buzz, and traffic, that comes with innovation, and it can acquire customers while it is still
inexpensive to do so. It locks up important content and distribution partnerships, and it
aligns itself with the most influential venture capital sources. Getting to market quickly
can provide an Internet company with significant momentum and a valuable boost over
the competition. The challenge then lies in keeping up the momentum. Many strong
online brands were also early-movers on the Internet, and benefited from additional hype,
and extensive word-of-mouth due to its novelty. As Internet penetration exploded, these
well-publicised brands also took off.
•
Relentless Innovation
Successful Internet brands are continuously looking for new ways to wrap more value
around their core service and offering, and are continuously adding new services and
functionality to their sites. This type of relentless innovation is instrumental in ensuring
brands develop traction and build momentum to keep ahead of competitors. In many
cases, the innovations are the result of the company's ability to data mine its vast database
of customer information, to create new services and content that satisfy customer needs.
By leveraging unique customer information, these innovations are difficult for competitors
to reproduce, giving the brand an edge, and differentiating it from other brands.
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET
•
Ability to Leverage Offline Brand and Assets
Bricks-and-mortar brands are often well positioned to succeed on the Internet. They
possess critical assets that give them an advantage over pure online start-ups. They have
an established brand, established customer relationships, established fulfilment systems
and infrastructure, and a physical presence (tangibility) - factors that clearly differentiate
them from pure players. Strong clicks-and-mortar brands are integrating their online and
offline activities to leverage the strengths of each other. In doing so, these brands must
respect their core brand elements and maintain consistency in the service quality that is
expected, but at the same time, expand the brand experience to meet customers'
expectations in the online world. Through extensive and seamless integration, clicks-andmortar brands are providing customers with true added-value, while reaping the benefits
of lower customer acquisition costs and extended reach.
The Internet has radically changed the business and competitive environments. Yet while
everything is being turned upside down, one component remains unchanged - value remains
(and always will) the basic building block for every successful brand.
7.2
OPPORTUNITIES FOR FURTHER RESEARCH
Given that the commercial Internet only began to take off in 1994, there has been a limited
time horizon to evaluate the durability of Internet brands. In addition, with the emergence of
wireless access and new platforms, new opportunities and dynamics will emerge as
companies develop innovative ways of acquiring customers, building relationships and
satisfying needs. Therefore, ongoing research would be necessary to build on the findings of
this dissertation. Nevertheless, the author believes that the core concepts and key factors
identified that contribute to successful online brands are likely to persist.
Brands and brand-building tools tend to be associated with consumer markets, however, they
are equally important in business markets. As such, the concepts, tools and key factors
outlined in this dissertation are also applicable to business markets. Nevertheless, an in-depth
analysis, drawing on several case studies from business markets, would represent an exciting
opportunity for further research.
Having established a strategic perspective on building online brands, this dissertation would
benefit from complementary in-depth research in the social and psychological dynamics of
the Internet and its impact on consumer behaviour.
110
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
APPENDICES
111
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
APPENDIX A - Interbrand's Ranking of the Top 60 Brands (www.interbrand.com)
Brand Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
Coca-Cola
Microsoft
IBM
General Electric
Ford
Disney
Intel
McDonald's
AT&T
Marlboro
Nokia
Mercedes
Nescafe
Hewlett-Packard
Gillette
Kodak
Ericsson
Sony
Amex
Toyota
Heinz
BMW
Xerox
Honda
Citibank
Dell
Budweiser
Nike
Gap
Kellogg's
Volkswagen
Pepsi-Cola
Kleenex
Wrigley's
AOL
Apple
Louis Vuitton
Barbie
Motorola
Adidas
Colgate
Hertz
IKEA
Chanel
BP
Bacardi
Burger King
Moet & Chandon
Shell
Rolex
Smirnoff
Heineken
Yahoo!
Ralph Lauren
Johnnie Walker
Pampers
Amazon.com
Hilton
Guinness
Marriot
Country of Origin
Industry
Brand Value ($US mln)
US
US
US
US
US
US
US
US
US
US
Finland
Germany
Switzerland
US
US
US
Sweden
Japan
US
Japan
US
Germany
US
Japan
US
US
US
US
US
US
Germany
US
US
US
US
US
France
US
US
Germany
US
US
Sweden
France
UK
Cuba
US
France
UK
Switzerland
Russia
Holland
US
US
UK
US
US
US
Ireland
US
Beverages
Software
Computers
Diversified
Automobiles
Entertainment
Computers
Food
Telecoms
Tobacco
Telecoms
Automobiles
Beverages
Computers
Personal Care
Imaging
Telecoms
Electronics
Financial Services
Automobiles
Food
Automobiles
Office Equipment
Automobiles
Financial Services
Computers
Alcohol
Sports Goods
Clothing
Food
Automobiles
Beverages
Personal Care
Food
Software
Computers
Fashion
Toys
Telecoms
Sports Goods
Personal Care
Car Hire
Housewares
Fashion
Oil
Alcohol
Food
Alcohol
Oil
Luxury
Alcohol
Alcohol
Software
Fashion
Alcohol
Personal Care
Books
Leisure
Leisure
Leisure
83,845
56,654
43,781
33,502
33,197
32,275
30,021
26,231
24,181
21,048
20,694
17,781
17,595
17,132
15,894
14,830
14,766
14,231
12,550
12,310
11,806
11,281
11,225
11,101
9,147
9,043
8,510
8,155
7,909
7,052
6,603
5,932
4,602
4,404
4,329
4,283
4,076
3,792
3,643
3,596
3,568
3,527
3,464
3,143
2,985
2,895
2,806
2,804
2,681
2,423
2,313
2,184
1,761
1,648
1,634
1,422
1,361
1,319
1,262
1,193
112
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
APPENDIX B - The McKinsey 7S Framework
The McKinsey 7-S Framework* (see diagram below) outlines the dimensions of a business,
showing how they are interrelated. It is critical that all these dimensions come together and
are re-enforcing, and as the business environment changes, all these dimensions must change
accordingly.
THE MCKINSEY 7S FRAMEWORK
STRUCTURE
STRATEGY
SYSTEMS
SHARED
VALUES
SKILLS
STYLE
STAFF
Traditionally, companies operated at a steady pace and were essentially geared up for
repetitive transactions and routine activities. However, with the fast pace of technological
change, global competition, customer empowerment, and the emergence of a knowledgebased economy, Internet companies must be able to move at warp-speed. They must move
quickly to capture new opportunities, commit and deploy resources, constantly innovate,
respond to competitive and market dynamics, and reorganise as appropriate. As such, the
approach that was successful for traditional companies is not suitable for new entrepreneurial
Internet companies.
The fundamental difference is that traditional companies have focused on 'managing for
efficiency', whereas entrepreneurial Internet companies must focus on 'managing for change'.
As a result, all their operations, activities, and structures are aligned differently, from the
culture of the organisation and how employees are compensated (stock options) to the flexible
and virtual structure, the informal management style and the constant strategy re-calibration.
*
Peters, T. & Waterman, R., 'In Search of Excellence', (Harper & Row), 1982
113
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
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114
BUILDING SUCCESSFUL BRANDS ON THE INTERNET
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