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Integrating Forward

Integrating Forward. Meeting demand and managing customers. Objectives. Define the Internet economy Discuss the return to relevance and value Describe customer relationship management. What is the Internet economy?.

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Integrating Forward

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  1. Integrating Forward Meeting demand and managing customers

  2. Objectives • Define the Internet economy • Discuss the return to relevance and value • Describe customer relationship management

  3. What is the Internet economy? • Term coined by Don Tapscott and published in his best-selling 1995 book The Digital Economy. • Refers to how Internet technology will replace the industrial economy as an engine for growth and change. • “The economy for the Age of Networked Intelligence is a digital economy” (Tapscott, 1995).

  4. Internet economy layers • Internet Infrastructure • manufacture infrastructure products (backbone, servers, fiber optics, routers) • Application Infrastructure • provide products (services) needed to carry out activities in digital market (web server s/w, tools) • Intermediary/Market Maker • increase efficiency of markets by facilitating interaction of buyers & sellers (brokerage, portal) • Internet Commerce • generate product & service sales to consumers or businesses over the Internet (product sales, advertising) Source: Cisco/UT Austin, 2000

  5. Revenues by layer Source: Cisco/UT Austin, 2000

  6. Reality check • There is no such thing as “InternetTime” • Time favors incumbents • Branding is not a strategy • Entrepreneurship cannot be systematized • Investors are not customers

  7. Still… • The Internet still changes everything • Customer power is increasing • Product selection and customization • Objective competitive information • The Internet changes your job • The distinction between Internet companies and non-Internet companies is fading fast • The real wealth creation is yet to come

  8. Dimensions of Customer Value 1. Conformance to requirements 2. Product selection 3. Price and brand 4. Value-added services 5. Relationships and experiences Source: Marchak, 2000

  9. Dimensions of Customer Value 1. Conformance to requirements 2. Product selection 3. Price and brand 4. Value-added services 5. Relationships and experiences Source: Marchak, 2000

  10. Example #1 Product selection • Largest direct PC manufacturer and one of the largest PC manufacturers. • Sells directly to customers, bypassing retailers and passes on the savings. • Has much less inventory than its competitors and much faster deliveries.

  11. What Rules Did Dell Break? • You can’t customize every order for every customer, so offer pre-configured models that can’t be changed. • Retailers recommend specific models to customers, so the channel cannot be bypassed.

  12. Where is the Value? Traditional PC Value Chain Step in Value Chain Component Suppliers Manufacturer Retailer Customer Example Company Intel, Microsoft IBM, Compaq, Hewlett-Packard Computer City, Future Shop Individuals, Corporations Chips $500 Software $500 PC $1500 PC $1750 Products and Price Selection, Advice R&D, New features Value Added Assembly

  13. Where is the Value? Direct PC Value Chain Step in Value Chain Manufacturer Retailer Customer Component Suppliers Intel, Microsoft Individuals, Corporations Example Company PC $1600 Products and Price Chips $500 Software $500 Value Added R&D, New features Assembly,selection, advice

  14. Immediate Decline of computer retailer. PC industry margin squeeze – consolidation and bankruptcy. Future Offer non-PC products in an electronics marketplace. What are the Consequences of the Dell Business Model?

  15. Example #2 Price and brand • Online retailer of books, CDs, electronics, and other products • Uses software to create detailed customer profiles and make customer-specific offers

  16. Price/cost • Amazon cuts costs of retail outlets and intermediaries. • Amazon’s distribution system is less expensive than its competitors. • Amazon gets paid before paying the distributor, whereas in the traditional distribution system it is the other way around.

  17. Customization • Amazon uses the data obtained from customers to offer personal buying recommendations. • Amazon’s innovations have included one-click shopping, its popular bestseller list ranking sales on the site, and the associates program.

  18. Brand • More personalized products and Web site experiences. • Broader offering of products are built into brand experience, allowing more revenue and profit per customer.

  19. Immediate Dominant Internet shopping brand. A lot of valuable information about customer buying. Future Wal-Mart of the Internet? What are the Consequences of the Amazon Model?

  20. Example #3 Relationships & experiences • Free sharing of MP3 music files. • Napster’s business model is tracking what people are searching for and charging advertisers.

  21. Growth of Napster Unique Monthly Visitors (000) 10,000 CAGR for 2000 = 550% 8,000 6,000 4,000 2,000 0 Oct. ’00 Oct. ’99 May ’00 Jan. ’00 Apr. ’00 July ’00 Mar. ’00 Feb. ’00 Dec. ’99 Sep. ’00 Nov. ’99 Aug. ’00 June ’00 Source: IDC

  22. Online Sales of Digital Music U.S. Digital Music Download Sales, 1999–2004 ($M) 1,400 1,200 1,000 800 600 400 200 0 1999 2000 2001 2002 2003 2004 Source: IDC

  23. Old Solution: Retailer Expensive Takes time to go to store and shop Paying for songs you don’t want Consistent and reliable quality “Human touch” Categorization Limited Selection New Solution: Napster Low cost Convenient Only get the music you want Less consistent quality Searching/downloading issues No categorization (yet) Greater selection Napster

  24. Music Value System Record Industry Music Consumers Step in Value Chain Retailers Artists Example Company Big 5 Dozens Hundreds of Millions Thousands Songs, Albums: $1.40 per album Products and Price CDs: $13.46 each CDs: $16.98 each CDs and songs Value Added Content Selection, inventory Production ($1.65), Marketing & Distribution ($11.19)

  25. Implications of Napster Model • Buyer is more important than supplier or distribution system. • Revenue loss for retailer. • Eliminates physical inventory and distribution issues.

  26. Immediate Online community building. Consumer power over recording companies and artists. Future End of intellectual property rights? End of paid-content industry? Beginning of flat-fee content industry? What are the Consequences of the Napster Model?

  27. What is CRM? • Customer Relationship Management • Integrated functionality for marketing, sales, customer support and call center requirements

  28. CRM Functionality • Call center management • Sales Force Automation • Contact / lead management • Expense reporting • Customer contact point management • Order entry • Order tracking • Service management • Content management

  29. The Value of CRM: Understanding Customers • Understandingcustomer needs allows the organization to design customer-specific levels of service and track profitability at the customer level • This increasesvalue per customer and customer retention

  30. Types of Information CRM Brings Together • Sales force reports • Market surveys • Focus groups • Electronic sources • Call center data • Customer billing • Customer information systems • The Internet

  31. Possible CRM Solutions • Advantages • Industry leader • Large pool of talent to choose from • Less expensive than Siebel • Better meets business needs • Disadvantages • Expensive • Fewer Clarify-qualified professionals • Risks losing programming and business knowledge if programmers leave Siebel Clarify Custom Program

  32. Implementation rates for CRM

  33. Customer Relationship Framework Loyal Chain Attract and retain the best customers Pricing customized to individual based on bundle of goods and services Opportunistic Store Price competition Bundled product offerings Power shifts to intermediaries who have store brand Opportunistic Store Loyal Chain many goods (services) Opportunistic Spot Price competition No customer loyalty Internet information intensifies competition Loyal Link Retain best customers Relationship value to the customer increases over time Systems improve branding and customer service SCOPE Opportunistic Spot Loyal Link single good (service) short long DURATION

  34. Framework Implications • Branding is key • Controlling costsis critical • Predictive pricing will be used in spot and store markets • Relationship pricing will be used in link and chain markets

  35. Business Requirements for Successful CRM • Differentiate the offer • Generate high repeat business • Provide comparison shopping • Encourage self-management • Personalize and customize • Build collaboration and community

  36. Summary • Defined the Internet economy • Discussed the return to relevance and value • Described customer relationship management

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