August 18, 2017


















Article 7.7

WEB STRATEGY REASSESSMENT TIME

The results are in for the last 18 months of web site experiments in distribution channels and, with few exceptions, they are slow and slower. The untapped promise of the web continues, however, to grow exponentially, so we must continually reassess our assumptions about and our strategy for securing a place in the emerging networked economy.

WHAT DOESNíT WORK

Taking new technology and applying it to our old business model hasnít done much. The "web presence" with corporate brochureware and a product catalog is just as boring as the printed versions that are still more user-friendly. The web catalog exceptions are for product categories that are vast, information rich and fast changing; e.g., books, semiconductors, etc. Such product categories are easier to research with web capabilities like parametric searching, drill-down for more options, and configuration engines. Suppliers also can instantly and continuously update the information for the entire planet all for less cost via the web.

Measuring hits to the site has been another weak idea for business-to-business sellers. We donít want a growing quantity of one-time, accidental visitors; instead, we want quality, repeat visits from our target customers. How do we strengthen our relationships with best and prospective customers using interactive web technology before they click away to someone else?

From distributors that have gotten some web leads or orders, we have learned two other lessons. Reaching global buyers isnít profitable for distributors that have freight sensitive products. And, retail-sized orders lose money at wholesale margin rates coupled with a business-to-business service cost structure. These problems might be solved, however, by re-thinking pricing, terms and service structures and by adding local fulfillment partners - perhaps eventually around the world.

And, web malls with electronic yellow page ads do not work as they do in the physical world. In cyber-space, every site is next door with a mouse click, and cyber-shoppers, like travel agents, want a search option that checks all relevant suppliers simultaneously and sorts their offerings by selected criteria.

WHAT DOES WORK

Web sites that have been drawing heavy and growing volume can offer some success guidelines for our next web experiments. Some examples follow.

  1. Many customers like the power, convenience and control of checking on their account status and being their own inside sales person. Banks have diverted many customer call-ins for account balances to self-service via a web site. FedEx now has many customers who prefer to schedule their own pick-ups and track their own packages at www.fedex.com. "Middleware" is the key to unlocking the potential of our legacy database information through to our web site, so customers can check their account information and enter orders.
  2. And, for placing orders, regular customers do not need catalogs with pictures and secure transactional servers. They can manage with what the inside sales people see and use, and the invoicing and trade credit can remain off-line. Customer convenience goes up with the on-line ordering option, and the distributorís costs go down enough that some of the savings could be split with the customer as a migration incentive. Pictures and secure web payment options can be done later, if desired, to target other segments of old or new customers.
  3. Customers like to have searchable and filtered access to all new and old information. On-line publications like the Wall Street Journal Interactive (www.wsj.com) offer searchable archive features, regular news with additional hot-link options, and an information push service that alerts customers via e-mail only about the topics for which they have pre-registered.
  4. Create and capture "community" first, then "extract value" from it second is a key concept put forth in the book "NET.GAIN", which was illustrated in May í97 by two independent announcements. First, IBM announced that it would close "World Avenue", a shopping mall that it set up in í96. Then, America OnLine (AOL) announced that it would receive a projected $50 million over the next three years for letting CUC Intl. plaster ads all over the AOL site. AOL has 400+ vendor bannner/catalogs at its site; so is it a mall that has succeeded? Not quite.
  5. First and foremost, AOL is a cyber post-office for over 8.7 million e-mail addresses and a meeting place for over 14,000 chat rooms. Since regular visitors must go through the selling bazaar to get to their mail and friends, they eventually start to buy. They are reluctant to leave, because of perceived technology switching costs and their cyber-pals arenít at any other site. This lock-in effect is a sustainable edge over other pure selling sites.

  6. We canít do anything with our customers if they arenít on-line, and a majority of distributor customers still arenít. We can wait until they do get wired and try to react to their new demands along with all other competitors. Or, what if we decided to proactively wire up our customers? We could cut a deal with an internet service provider that might pay $100+ out of the first year payment stream of $240 for every new account that we capture for them. If we are creative with our existing sales organization and one installation specialist, the incremental cost of such a program could be zero, and we would score initial goodwill points with the customers that we help.

But, to which site should we set our customersí browser default option - "ourcompany.com" or "great(type of customer).com?" The second site would be a customer centric site that could incorporate the success guidelines from both AOLís community lock-in example and eventually Sabre Groupís total shopping service for travel agents.

DO "A SABRE/AOL" FOR YOUR CHANNEL?

If customers are not satisfied with company sites and electronic yellow pages, why donít we ask them what they want and have them help us create that site. That is how Sabre Group emerged when the airline industry was deregulated. American Airlines (AA) first offered travel agents their own terminals for checking into AAís database, but the agents wanted one terminal for all vendors. So, AMR, the parent corporation, hired new people, put them in a different city (Tulsa) and told them to value-chain backwards from the customer. Because the customers wanted to see AAís seat prices ranked with the rest of the competitors; that is what they got. Sabre didnít care; as a separate profit center, it was making money on fees from both the travel agents and all the travel suppliers, including AA.

The Sabre service took off, because it was the first, best, total solution for the customer, and AA also prospered. The airline grew faster and more profitably than any other airline during the Ď80ís, in part because they innovated within the new on-line medium faster than its competitors. AA was the first to offer the customer the ability to get seat assignments and then boarding passes in advance through the travel agent. Then, they introduced the frequent flier program and pioneered yield analysis formulas for surplus seats. In the meantime, Sabre grew up to be a separate company on the NYSE with a market cap well over $3 billion.

Could we set up an arms length, new web site business thatís mission is to eventually provide all information and buying options that a target group of customers would want? If we donít pursue this vision, who will?

Could our traditional distribution business excel in this new open-shopping environment with a head start and a forward-looking attitude? What new virtual products could our customer centric site sell to a homogenous, planet-wide, niche of customers in return for virtual re-seller commissions off the top?

Could we line up fulfillment partners for orders that we received from customers in geographies that our distribution division doesnít serve? If we controlled the desktops, the eyeballs and the shopping/educational data activities of the end-users, how could we sell that information back to manufacturers so all parties win? If we donít think about these questions and try to answer them, who in our channel will?

CONCLUSIONS

History tells us that revolutionary technology is always used first to augment the old business model with minimal results. We have now done that with web technology. But, history also illustrates how someone eventually figures out how to use new technology and a host of other enabling technologies to totally reinvent an industry. Who will do that for our distribution channel over the next 1 to 3 years?

If we want to re-intermediate ourselves into the networked economy, then we will have to continue to pay to play with web technology. We can increase our odds of success and lower our educational costs of trying to get there by regularly assessing what is and isnít working in the area of interactive web commerce and then by testing quickly and cheaply.

It will be hard work running and funding our old business while we try to figure out, start-up and fund our new cyber-business, but what is our choice. Besides, it will be a great ride if we can catch this wave.

Merrifield Consulting Group, Inc. Article 7.7