Competing

1
Competing

• Describe strategies of competing on reach,
  affiliation and reach
• Describe the dangers and challenges of competing
  on reach, affiliation, and reach
• Describe how the internet helps the tilt to
  consumers
• Describe the six myths and countermyths of
  information and markets

2
Hierarchical Search

• Hierarchical search today tied to physical
  information flows among suppliers, wholesalers
  and retailers
• Series of choices
• Each choice constrained by previous choice
• Buyers use bounded rationality
• Sellers dominate navigation process
• Inefficiencies abound in hierarchical searches

3
New Navigation

• Corn Flakes phenomenon few high profile brands
  enjoy loyalty stickiness
• Separating economics of information from
  economics of things
• Possibilities with new navigation
• abundant connectivity
• common information standards
• infinite choice
• negligible searching and switching costs
• lack of center

4
Competing on Reach

• Reach is mere clutter without navigation
• Reach via catalog functions, people
• Metcalfs Law important for critical mass
• Network value (number of people using)2
• Navigator with greatest reach has the advantage
• Reach begets reach
• Search domain is defined by searcher

5
Competing on Reach

• Critical mass depends not on absolute numbers,
  but on reach relative to the domain of search
• Product suppliers and traditional retailers fear
  agent navigators with broad comparisons
• Domain of search that defines critical mass bears
  no necessary relation to the domains of physical
  suppler or distribution industries (information
  vs. things)

6
Reactions of Traditional Retailers and Suppliers

• First Generation Strategies are defensive web
  presence without cannibalization
• No real increase in reach
• Scope continues to be defined in terms of their
  physical economics
• Focus needs to be on consumer-defined domain of
  search
• Need second generation strategies Big Bets

7
Compete on Affiliation

• New tilt toward buyer
• Blow up reach constraint
• Navigators
• Reach becoming buyers agent

8
Product Suppliers Perspective

• Keep strictly loyal
  Sacrifice some efficacy
• Hurt long-term competitiveness
  as captive channels

9
Retailers Perspective

• Close ties with Affiliate with
• suppliers collective customers

10
Affiliation

• Test of affiliation
• consumers gain is sellers loss
• Currently most navigators serve sellers
• home decorators
• travel agents
• Reasons why navigators affiliate with sellers
• rich navigation is specific to sellers
• consumers unwilling to pay

11
Paying for Navigation

• Behavior of sellers agents
• Navigation becoming much cheaper (navigator does
  not need to be affiliated with seller to give
  away service)
• High quality navigation may be worth paying for
• Navigators compete with each other on affiliation
  and reach

12
Implications for Sellers

• Richness is being redefined
• Product may not be compromised by richness/reach
• Prevent new navigators from reaching critical
  mass
• may be hard to stop navigator from parsing
  sellers information
• collective actions not the same as individual ones

13
Implications for Sellers (cont)

• Co-option of navigators (affiliation programs)
• Deconstruct sellers business
• Greater affiliation with customer
• Provide objective and comprehensive information
  about products and services in consumers search
  domain that one does not sell
• Danger gaining critical mass
• Focus on end customer

14
Focus on End Customer

• Define ultimate customer
• Interact directly with end customer
• Microsoft example
• warranty registration cards
• Follow-web site visits
• Singe interactive marketing database
• from 72 to 1
• Other approaches
• Wal-mart approach
• Homeland approach
• IBM approach with pharmacies

15
Competing on Richness

• Tradeoff between richness and reach
• Richness strategy rich on customer
• segment-of-one - customization
• Richness strategy rich on product
• brand
• Segment-of-one and brands become more important
  when reach increases without improved
  navigability
• Universal navigation creates its own brands

16
Consumer Specific Information

• CDNOW - use customer information to help their
  search
• Configuration options
• Issues
• Privacy
• Customer Backward Integration (customers use
  their own software)
• Customers sell own information

17
Methods of Collecting Demographics

• HTTPD log files
• Page counters
• Cookies
• Web forms and e-mails
• Online focus groups and experiments
• Usenet
• Inducement
• Tracking/Demographic Services

18
Inducements

• Registration for products or service
• Interactive participation
• Coupons
• average household receives 3,000 coupons per year
• redemption rate declined from 4 in 1980 to 2 in
  1995
• H.O.T.! Coupons www.cybergold.com

19
Tracking/Demographic Services

• I/PRO Internet Profiles Corporation
• I/Code universal registration system
• leader in web tracking
• acquired by Engage Technologies
• DoubleClick Inc.
• CMGI

20
DoubleClick, Inc

• Sells advertising space on network of 1400
  websites
• Information to better customize ads
• Predicts what you will buy on Web based on what
  you have purchased online and offline
• Pay 1 billion to buy Abacus Direct
• may need to revise privacy statement
• Plan requires help of online retailer

21
CMGI, Inc.

• Web portals and advertising
• Nearly 50 Internet companies
• Focuses on where you spend your time online
• Acquired Engage Communications to gain access to
  profiles of 35 million anonymous Web surfers

22
Privacy

• Privacy the right to be let alone
• only authorized collection, disclosure or other
  use of information
• static and dynamic personal information
• Policy about how information will be used
• Example amazon.com
• Give information provider something in return
• Small bits of information vs. one consolidated
  database

23
Privacy

• Dangers
• Privacy protections
• browser standards (Platform for Privacy
  Preferences)
• standards adopted by sellers and audited by third
  party (Trust-e)
• Legislation - European Data Protection Directive
• Customer affiliation via tough voluntary standard

24
Government Intervention?

• Clinton administration favors allowing industry
  to regulate itself
• Department of Commerce and Federal Trade
  Commission want to encourage privacy protection
• Internet privacy protection legislation?
• EU Directive on Data Protection - blocks transfer
  of personal information about EU citizens to
  countries with inadequate privacy protection

25
State Legislation

• Number of states considering tough privacy
  legislation
• May prompt e-commerce industry to back
  comprehensive federal legislation
• California considering identity theft bill
• illegal use of someone elses private information
• new curbs on disclosure of personal data for
  marketing purposes
• privacy policies
• giving identity-theft victims the right to sue
  marketers

26
Agencies for Privacy

• CASIE
• industry coalition
• two major advertising trade groups
• inform consumer how information will be shared
• consumer be given option that personal
  information wont be shared
• World Wide Web Consortium
• P3 Platform for Privacy Preferences

27
TRUSTe

• Electronic Frontier Foundation and CommerceNet
  Consortium founders
• Founded in 1997 1000 seal awarded in January
  2000
• Based on industry-supported self-regulation model
• Independent, non-profit privacy organization
  www.truste.com
• Privacy quiz http//www.truste.org/users/users_ch
  allenge.html

28
TRUSTe Principles

• Informed consent
• No privacy without appropriate security measures
• Privacy standards vary according to context of
  use
• Rights to privacy can vary greatly from one
  country to another

29
Informed Consent

• What personal information is being gathered about
  you
• How the information will be used
• Who the information will be shared with, if
  anyone is used
• Choices available to you regarding how collected
  information is used
• Safeguards in place to protect your information
  from loss,misuse, or alteration
• How you can update or correct inaccuracies in
  your information

30
Product-Specific Information

• Supplier information may be biased, but it also
  may be continuously evolving
• Brands as belief
• set of propositions about product
• reliability, efficiency, features
• Brands as experience
• cannot be paraphrased
• feelings, associations, memories
• Brand as belief competes with navigator

31
Associated Press (AP)

• What major challenge does AP face as it competes
  on reach?
• How has AP applied the concept of domain of
  search?
• Consider AP as a navigator. Is it
• a buyer agent or a seller agent?
• How can the concept of brands be
• applied to this article?

32
Myth 1

• Myth Product customization (enabled by IT)
  benefits buyers
• best value\price tradeoff
• market works in favor of buyer
• Countermyth Product customization (enabled by
  IT) allows sellers to exploit buyers
• sellers exploit information about customers
• exploit smaller and smaller niches
• buyers have difficulty assessing differences

33
Myth 2

• Myth Increased outsourcing (enabled by IT)
  lowers prices and benefits buyers
• reduces suppliers production costs and creates
  more efficient markets
• Countermyth Increased outsourcing (enabled by
  IT) reinforces sellers monopoly by sustaining
  higher prices.
• asset specificity raises costs
• reduces competitive forces
• Intels market power

34
Myth 3

• Myth Open IT network architectures lower prices
  and benefit buyers as dependence on supplier
  hierarchies is reduced.
• ala Internet and TCP/IP
• reduces switching costs
• Countermyth Open IT network architectures could
  be exploited by suppliers to create captive buyer
  networks that can sustain higher prices.
• Harder to interpret bundling value

35
Myth 4

• Myth Linking multiple market centers using IT
  networks results in consolidated markets that
  benefit the buyer.
• Countermyth Linking multiple market centers
  using IT networks could result in fragmented
  markets that benefit the supplier.
• suppliers may withhold information

36
Myth 5

• Myth Expanding the customer base for a product
  using IT networks results in greater benefits to
  buyers
• Metcalfs law and network externalities
• Countermyth Expanding the customer base for a
  product using IT networks allows suppliers to
  exploit buyers.
• suppliers leverage market power to charge higher
  prices
• role of exit costs

37
Myth 6

• Myth A low price guarantee by suppliers (enable
  it IT) results in markets for the benefit of the
  buyer.
• easier for buyer to gather copious information
• Countermyth A low price guarantee by suppliers
  (enable it IT) results in price fixing and higher
  prices for the buyer.
• competitors can also track prices
• price matching price fixing

38
Forces Working in Favor of Suppliers

• IT increases set of feasible strategies
• Unique cost structure of information products
• Hard to define long run

39
Forces Working in Favor of Buyers

• Indisputable conventional arguments
• Information asymmetry is different
• agents
• collective infomediaries
• Regulatory intervention