InformationWeek

September 7, 1998

IT Makes Commodities Hot

Commodities producers are relying on IT to improve service, develop loyalty-and pump up profits

By Bruce Caldwell and Mary E. Thyfault

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he opportunities to introduce new and improved grain, wood, beef, energy, telecom, and other "commodity" products are rare. So how are companies in these industries differentiating themselves without slashing prices? In many cases, they're tapping IT-to boost their brands, improve customer loyalty, and ultimately drive profit growth.

In some businesses, such as wood and paper, leveraging IT may mean little more than introducing electronic data interchange to simplify and speed up customer orders. In other areas, such as electricity and gas, it involves the development of object-oriented information systems to deliver sophisticated energy-usage modeling and simulation tools over the Web to help business customers better manage their costs.

In today's marketplace, companies must differentiate themselves in two key ways, says business process reengineering pioneer Michael Hammer, head of management consulting firm Hammer & Co. They must be easy to do business with, he says, because "if you are adaptive and responsive, then customer costs go down even if you don't lower prices." And companies must add value through services, such as inventory management.

No commodities companies rely on IT to differentiate themselves more than telecom service providers, many of which are facing competition for the first time because of deregulation. Local and long-distance telephone companies are turning to a variety of information gathering, data analysis, and billing techniques to attract-and keep-customers.

US West Long Distance, for example, is assembling a data warehouse to target-market customers in Arizona, Montana, Nebraska, and New Mexico, states where the company plans to start selling long-distance service next year. The company is using knowledge about its customers to package its service with noncommodity services such as frequent-flier programs and ski vacations, as well as with discounts on cellular service.

US West Long Distance's data warehouse, based on an Oracle database running on an HP server, will have about 50 fields of demographic information culled from external information providers. The long-distance service is learning about such things as customer lifestyle, sports interests, income projection, and family status. Using a data mining tool called Strategist, from Kenan Systems Corp., US West Long Distance employees who aren't IT specialists can identify customers who fit certain profiles and decide how best to market to them. "We need to know our customers better than anyone else," says John Pitek, VP of marketing for US West Long Distance.

For example, traveling customers might value frequent-flier mileage programs, while customers with children in college might like low-fee programs that let the kids call home collect. The customer is receiving a value-added service-and US West Long Distance is distinguishing itself from its generic competitors.

Creative Computers Inc. is using IT to differentiate itself in another industry that's increasingly commoditized: PC sales. Creative Computers, which owns catalog companies PC Mall, Mac Mall, and Data Communications Mall, prides itself on its relationships with customers. And it's leveraging IT to extend that advantage, says Jonathan Bumba, director of sales for Creative Computer.

In January, the company started using MCI's Click 'n Connect to let Web users call their personal agent from a multimedia PC. "This lets us bridge the relationship gap that is often created by Internet usage without sacrificing convenience," says Bumba.

The company is extending its customer service with the relaunch of its Web site this month. From the new site, customers will be able to track their order from when it leaves the loading dock to when they sign for it. Creative is also installing "corporate landing pads," sites that will let businesses with Creative contracts place orders at prenegotiated discount prices. And Creative agents will even be able to push appropriate Web pages to their customers. For instance, if a buyer is in the market for a new monitor (or several), his or her agent can send along a Web page with details on the company's latest line of displays, complete with specs and prices.

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