The Dynamic Electronic Marketplace: New Rules for Getting to the Consumer

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By Linda J. Peters

For any company that sells to consumers, electronic communities will have the potential to be lucrative marketplaces. Companies ranging from packaged goods manufacturers to financial services firms will be able to pinpoint serious buyers, significantly reduce marketing and distribution costs and communicate directly with prospects and customers.

Electronic communities represent both threat and opportunity. On the threat side, one could envision new entrants, unburdened w ith high infrastructure costs, taking market share quickly. On the opportunity side, electronic communities offer an additional channel to the marketplace ; a way to increase revenues and supplement existing marketing and distribution channels. For many consumer products, we believe electronic communities will become the preferred distribution channel.

Tapping into the emerging electronic communities will require executives to unlearn many mass-marketing techniques of the last 30 years. In particular, they will have to rethink old rules of market segmentation, advertising and product sampling/buying.

Segmentation. In the 1960s and 1970s, segmentation of consumer markets was based on fairly predictable and crude demographic dimensions, including sex, age, income and education; marketers targeted segments such as women between 25 and 40, teenagers, and households of certain incomes. In the 1980s and early 1990s, segmentation was defined by "behavior groups" ; predictable but hard-to -reach markets based on such variables as psychographics, life stages, addresses (via ZIP code), and professional profiles. That led to segments like "empty nesters," "baby boomers" and "Generation Xers." With the rise of electronic communities, segmentation changes once more. Companies can now target people based on transitory or sustained passions and interests. Segmentation can be far more granular ; for example, Californians who want to vacation in Hawaii in July. As more and more electronic communities come on-line, executives will be able to reach people on the precipice of numerous buying decisions.

Advertising. Electronic communities represent a sea change in advertising media. We envision at least three major impacts: 1) a shift in the role of advertising, from creating generic images to offering specific communications that may lead to a sale, 2) a dramatic customization of messages and 3) the unprecedented ability to precisely and instantaneously measure the impact of advertising. Understanding these shifts requires thinking more broadly about the term "advertising." The reason: In electronic communities, the entire marketing process, from image making and demand creation (the traditional role of advertising) to selling and order fulfillment, can be compacted. Imagine, for instance, a hypothetical Marriott hotel "ad" in the Condé Nast Traveler's vacation community. Rather than merely communicate the Marriott brand, it could display a specific hotel and a specific room to the individual.

Sampling. The Internet's properties of interaction, ubiquity and, soon, a nearly full-sensory experience will allow consumers to easily sample many companies' wares and will dramatically increase impulse purchases. This kind of product sampling is already happening on the Internet with books and music. Several publishers let potential customers read chapters on-line. A music company, 1-800-MUSIC, lets music lovers tap into a variety of CDs and hear song clips. They can then purchase the CD, which gets shipped through the mail. (One could imagine electronic distribution of CDs in the future.) By capitalizing on the properties of ubiquity, interaction and sensory experience, the Internet provides a far more personal and convenient place to sample music than any retail store. In addition, inventory isn't limited by what fits on a store's shelves.

The net result of these changes in segmentation, advertising and sampling is a shift from viewing the marketplace as a limited number of fairly fixed consumer segments to viewing it as a kaleidoscope of dynamic communities of interest that form, expand and contract as interests emerge and change. To capitalize on this shift, executives must take the following steps:

1 Use the consumer process as the "navigator" to the future. Map out and understand all the consumer processes that are relevant to your business.

2 Define how you can provide value in the new con sumer proc-esses. Decide whether you have the assets to be the community developer. If so, create pilots quickly and test them with consumers.

3 Explore the world of interactive marketing ; i.e., marketing that compacts the entire customer acquisition process, from creating a need to taking the order.

4 Begin redesigning your operations to meet a whole new performance standard. A transformed consumer process will, in turn, force every party to dramatically improve performance. For example, to compete in a world of on-line mortgage shopping, lenders will have to qualify applicants in minutes with price-competitive products. Doing so will force many of them to totally redesign their operations for new standards in cost, quality and cycle time.


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