Module 11 Creating Customer Value Through The Internet

1. Module 11Creating Customer Value Through The Internet

2. Orientations in the History of American Business

3. What’s Next? • From mass production, to segmentation, to niche marketing, to customization, is there a next step? • Multiple markets residing within individual customers.

4. Co-opting Customer Competence C.K. Prahalad and Venkatram Ramaswamy 2000

5. “Customers are part of the enhanced network; they co-create and extract business value. They are collaborators, co-developers, and competitors.”

6. “The competence that customers bring is a function of the knowledge and skills they possess, their willingness to learn and experiment, and their ability to engage in an active dialogue.”

7. Examples of Companies Drawing on Customer Competencies • Microsoft • Had customers test a beta version of Windows 2000. • Sought feedback on features and attributes. • Ironed out bugs. • Added value by customers: $500 million. • Cisco • On-line service that gives customers open access to its information, resources, and other customers. • Customers end up solving problems encountered by other customers.

8. Examples of Companies Drawing on Customer Competencies • Medical field • Patients research causes and treatments of diseases. • Patients and doctors engage in active dialogue. • Patients and doctors collaborate to develop treatment plans. • “…the more knowledgeable customers become, the more likely they are to shape their heath care regimen.”

9. Harnessing Customer Competence • Identifying and defining the competencies of one’s own company is a tremendous challenge. • Trying to do the same with the competencies of one’s top suppliers and then integrating those competencies further complicates matters. • How does a company harness the competencies of millions of customers?

10. Encouraging Active Dialogue • Dialogue with customers is a dialogue of equals. • Companies no longer have the monopoly on information access. • Engaging these customer in productive dialogue requires richer and subtler forms of exchange.

11. Mobilizing Customer Communities • Concept of “brand communities” and “subcultures of consumption” have existed for 10-15 years. • The Internet has facilitated the formation of self-selecting virtual communities. • The “power” of such communities derives from the speed with which they can be mobilized. • Companies that can tap into (and facilitate the dynamics of) these communities will have an advantage.

12. Co-creating Personalized Experiences • Customers do not simply buy a product, they buy an experience or bundle of experiences. • Customers increasingly want to shape the experiences themselves. • Personalization and customization are distinct.

13. Managing the Personalized Experience • Managing Multiple Channels of Experiences • Managing Variety and Evolution • Shaping Customers’ Expectations

14. Final Point – Customers as Competitors • More well-informed customers, are in a sense, competitors. • With much of the same information available to them, customer have more power. • More willing (and demanding) to negotiate terms.

15. Beyond Online Search:The Road to Profitability Ming Zeng, Werner Reinartz

17. Growth of E-Commerce • 65% of U.S. online users now use the Internet to shop. • 2006 online retail sales = $95 billion • 2010 online retail sales = $144 billion • 2006: 27% of total retail sales influenced by the Internet. • 2010: 50% of total retail sales influenced by the Internet.

18. Online Search vs. Online Transactions

19. Consumer Decision-Making Process

20. Search • The Internet has greatly enhanced the efficiency and effectiveness of this stage of the consumer decision-making process. • Advantage of Internet limited by the extent to which information search is an important factor in consumer decision making.

21. Search • Perceived Risk-Perceived purchase risk is the degree of loss in the event of a wrong choice. • Frequency of purchase-Search is also unlikely with familiar, repeated purchase, when customers make decisions based on their prior experience. • Functional vs. Value Expressive-Functional products are bought for their physical performance, whereas value-expressive are bought for social image or for sensory enjoyment.

22. Evaluate • High Touch vs. Low Touch Products-High touch product has to be evaluated with multiple senses whereas low touch products usually only require the senses of sight and sound. • High Info. Content vs. Low Info. Content- This aspect describes the degree to which product evaluation is based on physical vs. informational attributes.

23. Evaluate • Demand on Consumer Expertise- Successfully choosing among product alternatives requires differing levels of consumer expertise. • Expertise-is the understanding of the attributes in a product and knowledge about how various alternatives stack up on these attributes. • Internet is currently much less effective in providing expertise than in providing information.

24. Transact • Transaction is the process of agreeing contractually on the purchase, paying for it, and receiving physical delivery. • All three transaction elements are necessary. • Internet excels at the contract agreement and payment but is limited on delivery.

25. Transact • Central Driver - Does the consumer derive value from the transaction process itself? • B2C e-commerce business models have paid little attention to this aspect. • Purchase as a Process vs. Purchase as an End.

26. Non-Compensatory • Hypothesis – One stage in the consumer decision making process cannot be effectively compensated for by another stage in the sequence. • Is this true?

27. Business Models • Navigator Model – Portals such Yahoo, AutoByTel. • Product Originator – Sony, Dell, Land’s End, Citicorp • Expertise Provider- Consumer Reports, Bizrate, and Zagat • Transaction Facilitator – Paypal, TrueSpectra,Western Union, Advisor Central, Paypal • Logistic Operator – UPS, FedEx, 7-Eleven (Japan)

28. Conclusion • Success depends on how well companies can match their business model with the real value added of the Internet to their customers. • Previous hype of B2C commerce may have been due to the immense improvement in effectiveness of the information search, however such efficiency gains cannot drive every product category online.

29. Discussion questions • What assumption does the authors’ definition of e-commerce success rest on? • Is this realistic?

30. A Framework for Customer Relationship Management Russell S. Winer

31. What is CRM? • The application of technology to learning more about each customer and being able to respond to them one-to-one. • Treating each customer with empathy and sensitivity. • An expensive way to learn what otherwise might have been learned by talking to customers for five minutes.

32. What is CRM? • The application of technology which combines online capabilities and off-line personal interactions which allow a company to establish, nurture, and sustain long-term customer relationships (Winer). • Getting to know each individual customer through detailed customer information that allows for better target marketing (Kotler).

33. Create a Database CRM Model Analysis Customer Selection Customer Targeting Relationship Marketing Privacy Issues Metrics

34. Creating a Database • Transactions • Customer contacts • Descriptive information • Response to marketing stimuli • Data should be overtime The more extensive the information on each customer, the greater the likelihood of creating a meaningful customer relationship.

35. Analyzing the Data • Limitations of analyzing according to customer segments. • LCV: Lifetime customer value • Market basket analysis • Clickstream analysis

36. Selecting Customers • What criteria should be used? • Highest purchase rates? • Greatest brand loyalty? • Most profitable? • Specified level of ROI? • Caution in deselecting – can lead to unhappy ex-customers and negative WOM.

37. Target the Customers • Mass-media promotions: TV, Radio, or print advertising, poorly suited to CRM. • Direct marketing: telemarketing, direct mail and email, direct sales. • New mantra: “1-to-1” Marketing or using Internet to facilitate individual relationship. • Are these methods effective? What developments need to occur for more effective CRM communications?

38. Relationship programs • Relationship develops based on the program, not the medium of communication. • Overall goal of relationship program: deliver higher level of customer satisfaction.

39. Frequency/Loyalty Programs Customer Service Customization Customer Relationship Management: Satisfaction Rewards Programs Community Building

40. Metrics • Shift from company-centric (profitability, market share) to customer-centric measures in the evaluating the success of products and services. • Web-based and non-web based measures: • Customer acquisition cost • Conversion rates • Retention rates • Same customer sales rates • Loyalty measures • Customers share

41. Current Success of CRM Programs • Less than 30% of CRM-adopting companies achieve expected returns. • Causes of CRM program failure: • Organizational change (29%) • Company politics (22%) • Lack of understanding of CRM (20%) • Poor planning (12%) • Lack of CRM skills (6%) • Budget problems, software problems, bad advice, other (all less than 4% each).

42. Strategic Suggestions • Do not invest until there is a culture of CRM; the company is customer-centric. • Don’t target customers, empower customers. • Rely on information from customers, not about customers.