Building digital brands

SynopsisSynopsis
Building Digital Brands
Online has always taken a back seat to offline in brand building. Yet online offers the
best options for building a meaningful brand, options that didn't exist only a few years
ago. Companies without a solid digital brand strategy are literally being left behind as
leaders build new digital brands.
Reflecting on the current state of online advertising, the majority of online marketers
are doing a terrible job of building their digital brands. Advertisers are fighting tooth
and nail to produce the world's worst advertising, actually destroying their existing
offline brands in the digital realm.
For the most part, if one looks at ads that run during top TV programs or that appear
in top magazines, one will find quality in the advertising (even if the ads are a bit dry
and boring). But if one looks at a top web site and views a few dozen ads, it will be very
difficult to find quality advertising. In effect, the bulk of the ads online do more harm
than good to the brands they are trying to build.
In one industry after another, aggressive Internet upstarts are putting established
brands at risk, creating very strong brand recognition and enjoying explosive visitor
growth. The reason may have less to do with the established brands themselves than
with their managers.
Marketers know what a brand is in the physical world: the sum, in the consumer’s
mind, of the personality, presence, and performance of a given product or service.
These "3 Ps" are also essential on the World Wide Web. In addition, digital brand
builders must manage the consumer’s on-line experience of the product, from first
encounter through purchase to delivery and beyond.
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Digital brand builders should care about the consumer’s on-line experiences for the
simple reason that all of them—good, bad, or indifferent—influence consumer
perceptions of a product’s brand. To put it differently, on the Web, the experience is
the brand.
Example
If a consumer buys lipstick from a retailer in the physical world and has an unpleasant
in-store experience, she is more likely to blame the retailer than the manufacturer. But
if the consumer purchases that same product from Procter & Gamble’s Reflect.com
Web site, her wrath is more likely to be directed at P&G. Thus the on-line marketer’s
objective shifts from creating brands—at least as defined in the off-line world—to
creating Internet businesses that can deliver complete, and completely satisfying,
experiences.
Yet many marketers, particularly those whose experience is limited to the off-line
world, lack a coherent framework and concrete methods for achieving the broader
objectives of on-line brand building. These marketers need an approach for aligning
the promises they make to consumers, the Web design necessary to deliver those
promises on-line, and the economic model required to turn a profit. These three
elements—the promise, the design, and the economic model—together form the
inseparable components of a successful Internet business, or what might be called a
digital brand.
This project is an attempt to propose to the industry the right approach to build and
sustain their brand in an online environment.
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How much impact is the Internet really having on advertising and marketing? Is it just
another emerging niche medium with some peculiar creative capabilities and
constraints? Or might it transform consumer marketing in the same way that network
television revolutionized consumer culture and commercial practice four or five
decades ago?
Interviews with marketers reveal that few believe the Internet will change their
approach to advertising. Most see it as little more than a complement to traditional
marketing practices, and don’t expect it to reduce expenditure on broadcast and print
media or change the form, pricing, or delivery of advertisements. Their view is
probably a reaction to the early hype about the Internet and the World Wide Web,
which created unrealistic short-term expectations among marketers and frustration
with the inadequacies of the delivery technologies among consumers.
We take a contrary view. We believe that Internet advertising will account for a
growing proportion of overall advertising
expenditure. Moreover, advertising — and
marketing in general — will adopt practices first
developed or deployed on the Internet. As the
technology improves, the impact of Internet
advertising will increase and become easier to
measure, and the gap between this new precise, interactive marketing capability and
conventional "fuzzy" passive media will widen. Over the next few years, advertising
agencies and consumer marketers will be under pressure to change their whole
approach to marketing communications.
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Growth of Internet as
Marketing Medium
Growth of Internet as
a Marketing Medium

Marketers will become more accountable for their results, and they will pay more
attention to building a total customer relationship. Offering consumers value in return
for information will become vital in eliciting their preferences, which in turn will be
critical to customizing advertising. And companies’ entire marketing organizations will
be progressively redesigned to reflect interactions with consumers on the Internet.
For ad agencies, fees based on results will become standard. The economics of Internet
advertising are likely to make current business models obsolete. New capabilities will
be required as creative production speeds up and becomes more closely integrated with
marketing activity. A deep understanding of enabling technologies will become a
prerequisite for fresh forms of advertising.
Our views on the evolution of Internet advertising and its impact on traditional
marketing may seem provocative to some, premature to others. But the intriguing
marketing experiments taking place on and off the Internet suggest it is time for
consumer marketers to begin looking to networks for new ways of thinking about the
marketing theories and approaches on which they have long relied — and to begin
capturing the lessons Internet advertising holds for all their advertising practices,
online and conventional.
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2.1 CAUTION: CHANGES AHEAD
Looking at today’s Internet advertising to predict what tomorrow will bring is about as
helpful as using a rear-view mirror to watch the road ahead. But a point of view about
what online advertising will look like in three to five years’ time can and should
influence current management A number of fundamental forces are currently
reshaping Internet advertising: the near-daily emergence of new technologies that
improve measurement, targeting,
and data interpretation; the strenuous efforts of primarily entrepreneurial marketers
to make business use of the Web; and the establishment of patterns in consumers’ use
of these new interactive networks. Thanks to the impact of these forces, tomorrow’s ads
will differ from today’s in the shape they take, in the metrics available for gauging their
effectiveness, and in the pricing structure that governs their purchase and sale.
New Shapes
The first and most obvious change in advertising will be in what consumers see on their
screens. Ads are likely to change in terms of their content, the type of customization
they employ, and their delivery to the consumer.
Content
Aspirations to transcend today’s form of Internet advertising will first be realized in
the content of ads. The development of new technologies such as virtual reality and
chat, coupled with consumers’ growing preference for material that is directly valuable
to them, is driving the emergence of new forms of content. Three main types are on the
horizon: experiential, transaction-oriented, and sponsored content.
Experiential content will allow consumers to "experience" the ownership of a product,
service, or brand. The best current examples let the user test out a product. Sharp’s
Web site offers a personal tour of the Zaurus personal digital assistant in which
consumers can input calendar or address information exactly as they would if they
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used the product in real life. At The Gap’s site, customers can "try on" outfits and mix
and match separates from the current range. In the future, technologies such as virtual
reality will make ads even more experiential: customers will feel as though they are
test-driving a new car, or walking down the aisles of a grocery store.
Transaction-oriented content will invite consumers to make a purchase directly from
an ad. Advertising content will become increasingly oriented toward transactions.
Indeed, the Internet may already be changing consumers’ buying behavior,
particularly for considered purchases such as cars. Prospective car buyers who are
looking for product information before making a decision can obtain more information
more quickly through the Internet than by any other means currently available.
Having done their research in advance, they are more ready to buy at the point when
they actually encounter a manufacturer or seller.
The implication for marketers is simple: they need to make it possible for consumers to
carry out transactions easily and seamlessly, or risk losing sales to competitors.
Consider Casio, which uses Virtual Tag technology developed by First Virtual to
enable customers to make purchases from an Internet banner ad. An Internet user can
learn about Casio products, purchase a watch on line, and select the means of delivery
without ever leaving the banner.
Sponsored content will blur the line between editorial matter and advertising. A lot of
sponsored content already exists on the Internet — for example, Nissan sponsors
weekly soccer tips on Parent Soup in association with the American Youth Soccer
Association — but by and large it tends to resemble the "brought to you by ABC"
model familiar from traditional media. The emergence of advanced forms of hybrid
commercial–editorial content will be driven by consumers’ ability to "tune out"
straightforward commercial messages, be they banners, interstitials (ads that pop up
while users wait for a requested Web page to appear), or standard forms of
sponsorship, and by advertisers’ desire to influence attitudes in more subtle ways.
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By way of analogy, consider the growing use of product placement in films and
television (James Bond drives a BMW Z3 in his latest movie) as marketers seek to
make their offerings stand out from the clutter of ads and break through the cognitive
filters that allow consumers to discount ordinary commercials. The network
environment offers ample scope for hybrid content: entire sites can be funded and co-
managed by advertisers (as with Procter & Gamble and ParentTime), while avatar
technologies bring advertisers into chat rooms. However, the issue of editorial
independence and the possibility of consumer rejection or backlash may ultimately set
limits on the pursuit of this approach.
Customization
Anyone who has been offered a credit card they already hold can appreciate the need
for greater customization or "addressability" in mass-market advertising, and even in
direct mail. Indeed, the level of response that advertisers receive largely depends on the
accurate and timely targeting of messages, as do the number of transactions and the
degree of loyalty that are generated.
The Internet is supposed to enable marketers at last to target their offers to that elusive
"segment of one." Yet advertising on the Internet has so far been targeted mainly on
the basis of editorial content, just as it is in traditional media. Part of the reason is
technical, though the development of tracking software that allows ads to be delivered
only to target audiences is overcoming this obstacle. Consumers’ reticence has been a
further barrier, but as Internet users grow more willing to provide information about
themselves, two types of customized content will emerge.
First, content will be customized by means of information inferred about users. The
Ultramatch technology recently launched by Infoseek, to take one example, makes it
possible to target those Web users who are most likely to respond to a given ad. Based
on neural networking technology, Ultramatch observes users’ behavior when they put
out queries and explore subjects, collecting the results in its database. Advertisers using
the service can select individuals according to their interests and thus pitch their
campaign to a receptive audience. Ultramatch also allows them to ascertain which
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2.1 Internet Advertising Objectives
individuals are responding to ads, and to move the ads to places where they will attract
similar users.
Second, ads will be customized on the basis of information voluntarily provided by
users. The key to making this approach work will be to overcome consumers’ desire for
privacy or anonymity by offering them rewards for personal details in the form of
special information, discounts, or promotions. On ParentTime, for example, users who
enter the ages of their children receive relevant care information as well as Pampers
ads geared to those age groups. Experience suggests that consumers are willing to
release information about themselves as long as they are the prime beneficiaries.
Organizations such as etrust (an initiative sponsored by leading companies to develop
electronic commerce) and the Internet Marketing Council take a similar view. The
IMC requires marketers to provide a "giveaway" or discount before they can gain
certification. This scheme is specifically designed to prevent information provided by
consumers from being misused in e-mail.
Delivery
The recent hype about "push" technology
on the Internet might suggest that this will
be the dominant vehicle for delivering
advertising on the Web. We believe the
reality will be more integrated, combining
today’s "pull" format Web sites with
"push" technology such as PointCast to
deliver ads to people according to their
interests. Triggered banners (ads that
appear when certain key words are
mentioned) and interstitials are early
examples that point the way. Consider how
one automaker’s ads are pushed to
chatroom participants when the topic of
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cars comes up, or how a user waiting for content to be downloaded is sent an ad related
to that content.
Marketers must ask themselves a number of questions: What is the right balance?
Where can push technology be exploited most effectively? How much push are users
willing to take before they begin to tune out?
As online advertising develops, advertisers will discover that the Internet is the only
medium that can deliver certain types of message, such as multi sensory and interactive
ads. These new forms will allow advertisers to achieve several objectives — some of
them unattainable via conventional media — simultaneously (Exhibit 2.1). They are
likely to make Internet advertising more important in the overall marketing mix as
marketers capitalize on their unique capabilities. At the same time, our glimpse of the
emerging future casts doubt on the merit of current heavy investments in big brand
sites that require content to be "pulled," or in banner ads that — like most on the
Internet today — merely replicate the forms of advertising that exist in the physical
world.
New Metrics
The Internet affords marketers an unprecedented opportunity to measure the
effectiveness of their advertising and learn about their viewers. The capacity to
measure impact sets the Internet apart from other media. Measurements available for
television, for example, estimate the total size of an audience; what they don’t do is tell
an advertiser how many people actually saw an ad, or what impact it had. On the
Internet, by contrast, marketers are able to track click-throughs, page views, and leads
generated in close to real time. The result: measurements that are more precise and
meaningful than anything available in traditional media.
The emergence of these new metrics will affect not only ads themselves, but also the
way that marketers and agencies develop them. First, more precise measurements will
yield better insights into the effectiveness of advertising spend. It will be easier to
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identify ads that don’t work, and to find out why. Advertisers will also start to expect
the content of ads to be renewed more frequently in response to audience reaction.
A new product from Infoseek offers a hint of things to come. Copy Testing in a Box is a
tool that combines the immediate feedback of the Internet with sophisticated targeting
technology to allow marketers to refocus their Internet campaigns to the most
responsive customer segments within a matter of days.
Second, advertisers will be able to assess the impact of their ads earlier in the spending
cycle. As a result, they will have the flexibility to launch and roll out a campaign in
such a way that it can be changed before most of the money is committed. This will
affect the very process of creating Internet ads, and perhaps spur advertisers and
agencies to devise new ways of organizing around it.
New Pricing
Whereas marketers tend to have fairly uniform objectives in traditional media, such as
shaping attitudes in television or obtaining responses in direct mail, the Internet, as we
have seen, allows them to pursue several different goals simultaneously. In the same
way, the standard types of pricing used in traditional media, such as CPM (the cost of
exposing a message to a thousand viewers of TV or readers of print), will give way on
the Internet to pricing that varies as widely as the objectives of the ads themselves.
Indeed, the technology can support several pricing mechanisms at once: pay per click-
through, lead, transaction, dollar spend, or conventional CPM. This kind of variegated
pricing is already appearing in the marketplace: P&G has pushed for pricing per click-
through; CD Now pays Web sites commissions on the transactions they generate; and
Destination Florida pays according to leads generated. Similarly, DoubleClick is
introducing an advertising network, DoubleClick Direct, whose rates are based on
results, and has already signed up clients including Alta Vista and GTE’s Internet
service.
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2.2 Emerging Internet Pricing Models
Because of these factors, pricing for Internet
advertising is likely to be multi-tiered, based on
results, and tied to marketers’ objectives. At least
three pricing mechanisms will coexist: pricing by
exposure, response, and action (Exhibit 2.2).
Pricing per exposure — for instance, via a rate card
based on CPM — will prevail for ads placed on the
Internet to generate awareness of a product or
brand. Over time, this form of pricing should
become more refined. As measurability and
Metering improve, advertisers will want to pay only for impressions on their target
customers, while publishers will eagerly search for ways to extract premium exposure
rates. The result is likely to be the establishment of an additional tier of "effective"
CPM rates.
Pricing per response will establish itself as the standard for simple consumer responses
such as click-through. Prices will vary according to the types of user a site attracts and
how much advertisers are willing to pay for access to them.
Pricing per action is similar, but more elaborate. A site publisher might charge an
advertiser more for a consumer who downloads a piece of software or provides some
demographic information, say, than for one who merely clicks on a banner. We believe
that the ability of Web publishers to charge advertisers for the true value they receive
is likely to make the difference between profit and loss. The price for a lead generated,
for instance, could reflect the prospect’s potential lifetime value; if it did, sites would
charge automotive OEMs and white goods manufacturers different prices for prospect
leads. As a result, a fee per action or sales commission is likely to emerge as a major
pricing mechanism for Internet advertising over time.
How quickly and how far these models take hold in the near term will depend on how
risk is shared between marketers, agencies, and sites. Results-based pricing gives
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marketers the opportunity to shift some of the risk of failure to sites or agencies.
Publishers and broadcasters in traditional media have usually been loath to take on
this kind of risk. However, Internet publishers should find risk sharing attractive if it is
appropriately priced, as it could boost the advertising revenues on which their success
depends.
Pricing in general is fraught with issues. Will site publishers demand a degree of
control over the creative execution of ads to ensure quality, for instance? We believe
that the sharing of risk in Internet advertising will ultimately be determined by the
prevailing balance of power, which will vary from advertiser to advertiser and site to
site, and shift over time. Large, well-known, "safe" advertisers may be able to secure
results-based pricing more easily than others, particularly at times when site publishers
are struggling to make their economics work.
It will be in the best interests of marketers, site publishers, and even agencies to
prevent the lowest common denominator setting the industry’s pricing standard. To
settle for a simplistic, unsophisticated, "one size fits all" pricing scheme would mean
leaving a lot of money on the table. The widespread acceptance of multi-tiered,
performance-based pricing will make the Internet both distinctive and highly lucrative
as an advertising medium.
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2.2 THE SPILLOVER EFFECT
The changes now taking place in the shape, measurement, and pricing of advertising on
the Internet may seem dramatic enough in themselves, but we believe they will have a
much broader impact on marketing practices in general. This spillover effect will occur
for four reasons.
First, new ways of advertising on line will inspire new creative approaches elsewhere.
Second, the Internet will prompt marketers to reevaluate their use of traditional media.
Third, Internet advertising will help marketers to improve their understanding of
consumers’ needs, preferences, and product usage. Finally, once marketers get a taste
for the measurability of Internet ads and the tailored pricing it enables, their
expectations of the effectiveness and measurability of other media will rise.
New Creative Approaches
The timeliness and direct tone of advertising on the Internet will increasingly inspire
marketers operating in other media. Seeing the daily updates of information that the
Web makes possible and the lengths to which online advertisers must go in order to
keep users’ interest (for instance, renewing banners weekly) may sharpen their appetite
for replicating Internet practices on TV and in print.
The notion that creative approaches pioneered on the Web will spill over to more
traditional media should surprise few. Historically, the emergence of new media has
always prompted content changes in existing media. Consider how print changed after
radio, and later television, arrived on the scene.
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Fidelity Investments recently attempted to mimic the immediacy of the Internet in its
television advertising. It refreshed its ads on a daily basis by incorporating current
news headlines. However, the campaign met with mixed success, perhaps because it
lacked a distinctive point of view.
Marketers’ adoption of creative techniques pioneered on the Internet will grow as
technologies like broadband, WebTV, and virtual reality begin to influence traditional
media. Wink and Worldgate are developing technologies that allow viewers to "save" a
commercial to watch later, or to obtain more detailed information. These technologies
are in their early test stages on television.
The enormous creative flexibility offered by the Internet will increase pressure for
more choices of delivery in traditional media. The (probably apocryphal) story of
Helena Rubenstein asking to buy an extra three seconds for a 30-second spot to realize
her creative vision suggests how we may start to question accepted standards and
constraints in traditional media.
Marketers may also need to reexamine the theories that underpin their advertising
practices. As we noted, online advertisers have found that banners must be renewed
frequently if consumers are to keep clicking. Their experience defies the conventional
wisdom in advertising that any ad must be seen at least four times to make an
impression. On the Internet, greater impact can be achieved by showing a wider range
of ads that are repeated less often. Insights like this cast doubt on the effectiveness of
current television campaigns, most of which are still based on old ideas of frequency.
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Reevaluating Media Investments
Everyone has heard the advertiser’s lament: "I know 50 percent of my advertising is
working; I just don’t know which 50 percent." The greater measurability of Internet
advertising will prompt marketers to reevaluate all their investments in media,
especially in the addressable categories of print and direct marketing. Not only are
response rates often higher in Internet advertising, but the cost of reaching target
customers can be lower, with better information received in return. As a result, we may
well see a migration of targeted marketing spending from direct mail and other
traditional media to the Internet.
Consider a recent example. AT&T used the Internet to generate awareness of and
shape attitudes toward its toll-free collect-call service, which is mainly targeted at 16- to
24-year-olds. The company had previously found this audience difficult to reach cost-
effectively through print or broadcast media. The results of the online effort were
excellent. Top-of-mind awareness increased by over 30 percent, and AT&T opted to
replace its print advertising with an Internet campaign.
The traditional approach to customer response and lead generation has been to use ads
in trade magazines and customer response or "bingo" cards. However, findings
announced by one large publisher of trade titles indicate that more than two-thirds of
bingo cards either go unanswered or are not responded to promptly because of the time
it takes to qualify and manage leads. The study suggests that the Web is an excellent
tool for generating quality leads and may even supersede bingo cards in time.
Migration of this kind will reallocate the slices of the advertising pie. Interviews we
conducted with marketers reveal that most believe their initial spending on the Internet
did not come at the expense of other media (in other words, their overall advertising
budget grew). But many expect that future increases in their Internet expenditure will
be taken from other areas, probably print and/or direct marketing. They also see their
Internet advertising budgets growing much faster than their traditional media budgets.
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Migration
may also
take place
in non-
addressable
media
spending.
Striking
levels of
media
displacement are already evident among Internet users. Most notably, TV viewing has
declined among a third of adult Internet users (Exhibit 2.3). Similarly, in a recent Wall
Street Journal poll, 21 percent of respondents cited spending more time on their
computer or in using online services as a reason for watching the major TV networks
less than they did five years earlier. When marketers accept the idea that brand
building can be accomplished on line, some spending on TV, radio, billboards, and
other non-addressable media may migrate to the Internet.
Getting Closer To The Consumer
We believe marketers will soon start to use the Internet as a kind of testbed for
campaigns planned for print, TV, or radio. One leading-edge marketer, London
International, the maker of Durex condoms, is already trying out advertising concepts
on its Web site before transferring them to other media where their effectiveness is
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2.3 Declines in Usage of Traditional Media

harder to track. It is testing three concepts ultimately destined for conventional media:
"On-line Lovers," "Dr Dilemma," and "The Nurse." By monitoring pages selected,
click-throughs, responses generated, and other indicators, the company is able to
discover which parts of a prospective campaign work and which don’t, thereby
reducing the risk of launching the equivalent of a box-office flop.
Conducting market research and obtaining feedback from consumers can be expensive
and difficult. The Internet offers cost-effective alternatives to conventional methods,
and may yield more revealing information. Several of the marketers we interviewed
said that their presence on the Web had taught them a tremendous amount about their
customers’ views of their products and services. They maintain that the Web offers a
non-judgmental way of providing feedback and ideas, and is less intimidating for
consumers to use than standard toll-free numbers.
Marketers at Fidelity, London International, and Coors found that users of toll-free
numbers mainly called to ask questions about products. On the other hand, Internet
users, even when given answers to the most frequently asked questions, would often
provide feedback about the quality of a product, new variations on it, and ways that it
might be changed. To be sure, some of the additional interaction may be down to the
different demographic profile of Internet users, but gathering information of this kind
is becoming an increasingly important way to use the Web.
To gather deeper feedback, marketers are experimenting with Internet focus groups.
LiveWorld has already hosted several sessions for NFO, a company specializing in this
area. The advantage of conducting a focus group on line is that participants are
anonymous and can speak their mind without worrying what others in the group think.
In addition, geographically dis-persed participants can be assembled at a fraction of
the usual cost. London International is planning to conduct an online focus group to
assess the effectiveness of its Web efforts in the near future.
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Finally, the opportunities for testing new product ideas on the Internet are legion,
particularly for electronic or intangible items such as magazine covers, entertainment
concepts, and personal financial services. The possibilities are just beginning to be
exploited
Rising Expectations
Two features of Internet advertising — the measurability of its impact and the
probability of some form of results-based pricing emerging — are likely to raise
marketers’ expectations of traditional media. If they do, pressure may build for a more
accurate measurement system or a shorter measurement cycle. The demand for greater
accuracy in measurement is already coming from the broadcast networks in any case.
The coding technology tests being carried out by SMART (the emerging competitor to
Nielsen), by Nielsen itself, and by its joint effort with Lucent to develop Media TraX
indicate that improvements are technically feasible.
In fact, it would not be surprising if new measurement tools and tech-niques originally
designed for the Internet were to spill over and be applied to traditional media in the
not so distant future. Moreover, in those traditional media that are already more
measurable, such as print, we foresee increasing pressure from advertisers for results-
based or tiered pricing like that offered on the Internet.
The developments we have described are necessarily speculative, and may not
materialize as broadly or as quickly as we suggest. All the same, they are worth
watching out for because of their implications. Most of the media industry is affected
by the billions of dollars spent every year on consumer marketing. If key advertisers
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were to reallocate their media budgets, the impact on traditional media could be
profound.
As the aspirations, techniques, and expectations associated with Internet advertising
spill over into traditional media, both marketers and advertising agencies will have to
rethink the capabilities they bring to bear on selling products and services.
2.3 IMPLICATIONS FOR MARKETERS
The growing importance of Internet advertising and its effect on conventional
marketing will have profound implications for practitioners. First, the Internet model
will set new standards for building relationships in the physical world, challenging
many current practices and expectations. Second, a new concept, value exchange, will
emerge as a core marketing capability. Finally, the move toward organizational
structures and processes designed around consumers’ experiences with specific
products or services will accelerate further.
New Standards In Relationship Management
The Internet will set new standards for total relationship management in both breadth
and depth. "Breadth" means that a relationship will increasingly last for the entire
ownership experience, including the time before and after the purchase of the product
or service. Consider Coors, which used consumer feedback received via the Web
during both the development and promotion of its beverage Zima — thus involving
customers at all stages in the product life cycle.
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"Depth" reflects the degree of interaction with consumers at any given point in their
experience of a product. The book retailer Amazon.com, for instance, is beginning to
use the information it gleans from customers to create value-added services such as
suggestions about books that a particular reader might enjoy. This raises the bar for
competitors on the Internet and in the physical world, posing a challenge that other
players must meet if they are to retain customers’ loyalty.
The Internet’s role in consumer relationship management has important consequences
for marketers. Network-based interactions must be integrated into the rest of a
business, with all that this entails.
If car purchasers make fewer trips to the showroom, say, doing their own online
research into different models instead of talking to salespeople, dealers will need to
rethink the way they manage the whole consumer relationship. Eventually, customers
may go to them only to place an order; at this point, the role dealerships play may no
longer justify their cost, and they will have to find new ways to offer buyers value if
they are not to disappear. Moreover, as consumers’ behavior changes, so will the skills
that salespeople need. And how are those salespeople going to be compensated when
consumers make their purchases through channels other than dealerships?
Design and funding is another key area. If the Internet’s role is to grow beyond
advertising, the design of online activities should probably not be constrained by the
priorities of a single functional area such as marketing, or by the limitations of the
marketing communications budget.
Value Exchange As A Core Capability
Much of the Internet’s potential relies on the creation of a dialogue between consumer
and marketer in which information is exchanged for value. Marketers need to develop
the new skill of rewarding consumers for giving them access to personal information
such as who they are, what they like, and what they buy. This reward may take the
form of discounts toward future purchases, or benefits such as valuable information or
a personalized product or service.
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This process of value exchange will become critical as new standards are created to
protect consumers’ privacy. The proposal announced by Netscape in May 1997 to
capture information on consumers’ hard drives rather than on marketers’ computers
marks a step in a new direction with its implicit acknowledgement that consumers will
"own" information about themselves and control the release of that information to
marketers. The demand for value among consumers is likely to grow as they become
aware of how highly marketers prize their demographic profiles, product preferences,
and transaction histories.
A few marketers are beginning to manage this process effectively. In exchange for basic
information such as name, address, age, and income, Vogue provides readers with
discounts, special offers, and previews of forthcoming articles. Saturn’s approach is to
offer convenient access to information. Consumers who reveal a small amount of
information about themselves are able to use Saturn’s interactive pricing center to
research new cars, saving them trips to a showroom.
Organizations Centered On Consumers
As the Web merges marketing with other business processes such as customer service,
it will put more pressure on the organization of most marketers. The coming of age of
interactive networks will accelerate the move toward new organizational models in
which marketers will structure their various functional capabilities around an
integrated customer front end.
For a real-life example, take the insurance company USAA. Its customer center
receives and manages all communications with consumers, whether direct via
telephone, mail, and the Internet, or indirect via intermediaries. The rest of the
organization revolves around the customer center. Sophisticated information systems
help the company to process interactions and maximize their value.
The benefits are many. Customers feel that USAA knows them better, and the
21

company is quick to respond to a complaint or learn about important market changes
such as a cut in a competitor’s price in a particular territory.
As more and more companies reorganize themselves around their customers, intranets
linked to the Internet will become crucial. They will make it economically feasible for
managers within an organization to have more information about consumers — and
more interactions with them — than ever before.
2.4 IMPLICATIONS FOR AGENCIES
The rise of Internet advertising, with its unique economics, may well call the validity of
current business models and processes into question. It will also compel agencies to
rethink the way they create and develop campaigns, and the skills and capabilities they
need to survive.
New Business Model
So different are the revenues generated by conventional and Internet advertisements
that traditional agencies will have to think carefully about their approach to online
advertising if they are to pursue it profitably. At present, most agencies incur high
fixed costs in developing campaigns. Big creative teams and the like were fine in the
days when agencies could rely on the commissions they earned from large media buys
associated with a small number of creative executions. On the Internet, however, this
cost structure is inverted: the creative element of the total advertising cost is much
larger in relation to the media element. The resulting commissions will no longer be
sufficient to cover agencies’ high operating costs.
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We believe that traditional agency business models simply will not work for Internet
advertising. A trend toward retainer compensation is already emerging. Agencies may
well seek to enhance their revenue streams by taking a cut of the results of their efforts
in the shape of a commission on leads or sales generated. In future, agencies will
increasingly share in the risk of their advertising instead of — as they do today —
leaving all of it to be borne by marketers.
Compensation models will be transformed. The measurability of Internet advertising
makes results-based pricing more feasible than in any other media, as we have seen.
Some examples are already in evidence. Site Specific is using performance-based
contracts for clients including Duracell, CUC International, and Intuit’s TurboTax
division. Though these arrangements are not yet making it any money, they are
expected to do so as advertising effectiveness increases. In time, results-based
compensation will probably spill over into traditional media as the measurement of
advertising impact improves. It will then have its most profound impact, affecting
agencies’ core business and revenue source.
New Capabilities
This vision of the future calls agencies’ current capabilities into question. Many have
seen themselves as the guardian angel of the brands they represent. But agencies have a
patchy record of orchestrating brand-building activities across the full range of
marketing disciplines: media advertising, direct mail, promotions, and so on.
The emergence of interactive media means that agencies must not only manage a
broader and more complex mix of marketing tools, but also master radically different
skills. Three main gaps will need to be filled:
1. Inform creative execution with a deeper understanding of enabling interactive
technologies. Such an understanding scarcely exists in agencies today, except in
some of the more specialized enterprises such as Site Specific and AGENCY.COM.
Traditional agencies may find their technological and creative skills are not
23

sufficiently integrated to compete with the specialist Internet ad agencies, which
enjoy a higher profile and more confidence among marketers in this area of work.
2. Integrate one-way and response-oriented campaign design skills. Interactive
advertising blurs the boundaries between traditional advertising, direct marketing,
and customer services — normally separate preserves run by different individuals.
Agencies will need to learn to integrate these skills in their design efforts.
3. Increase the speed and responsiveness of creative production. The immediacy of
interactive networks will make growing demands on the pace and frequency of
creative production. Agencies are currently organized around work processes with
relatively generous cycle times. Today, it is acceptable to take three to six months to
design one campaign, and to run it for up to two years. Tomorrow, a campaign with
300 one-on-one executions will have to be designed in two to three months, and
adapted continuously in response to real-time consumer feedback.
In summary, the future holds many challenges for agencies. The emergence of new
business models and the need for new capabilities are likely to shake up an industry
that has been under pressure for some time. Some agencies have shown that they can
customize their processes and economics to specific industry needs like those of grocery
retailers or auto dealers. Now they must learn to institutionalize these capabilities
within their organizations or spin off a cluster of flexible, technology-savvy boutiques
with low fixed costs. Viewed another way, the emergence of Internet advertising may
represent an opportunity for renewal — a chance for agencies to reclaim the high
ground of brand stewardship that some marketers argue they have let slip away in the
past two decades.
The emergence of Internet advertising is likely to have wider implications for business
than many imagine. Its effects will not be confined to the online world, but will extend
to traditional marketing activities and processes. For those who look closely, Internet
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advertising holds many more opportunities and risks than is commonly assumed. And
the payoff waiting for those who rise to the challenge will more than justify the efforts
required.
25

Many companies are waking up to the potential of the interactive consumer market.
Not only are the numbers of users of on-line and Internet services soaring, but the
majority of people who are subscribing to these services tend to be young, well
educated, and richer than average. In short, they make particularly good marketing
targets.
Interactive media is likely to revolutionize marketing for many consumer companies
because it allows marketers to deliver real-time, personalized services and content, one
consumer at a time. It is what we call digital marketing. Digital marketing leverages the
unique and powerful characteristics of interactive media: it is addressable, meaning
that each user can be identified and targeted separately; it allows for two-way
interaction; services can be tailored for each individual customer; and purchases can
be made and influenced on line. However, to capture the benefits of digital marketing,
companies must integrate interactive media into their existing businesses and
marketing programs. And that is difficult to achieve.
Most consumer companies are struggling to know what to do and how. The old models
of marketing simply do not work in this new world, and as a result most of today's
digital marketing applications are uninspiring (as anybody who has ever been on the
Internet can probably attest), falling far short of the potential of interactive media.
Research is being conducted to define a new marketing model that will help build and
evaluate digital marketing applications.
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Marketing to the Digital
Consumer
Marketing to the Digital
Consumer

3.1 TYPES OF DIGITAL MARKETING
Several broad types of attractive digital marketing opportunities already exist, and
there is evidence that marketer who aggressively pursue one or more of these
opportunities are starting to make profits.
First, marketers can use interactive media to provide better service at lower cost by
delivering information about a product or service. UPS, for example, uses an Internet-
based service to allow customers to track the whereabouts of their packages.
A second opportunity is to build relationships with on-line consumers. Interactive
media can be used to identify attractive users or prospects (an automotive company can
learn the names of interested car buyers and forward them to the closest dealer); it can
enhance customer loyalty by providing extra services; and marketers can use what they
learn about their consumers to cross-sell new products or services.
Third, marketers can use interactive media as a new channel. In 1995, Hot Hot Hot, a
small company that produces sauces, generated some 30 percent of its revenue from
sales through its Web site. And using interactive media, airlines are increasingly
bypassing travel agents to sell tickets, thus saving significant commission costs. For
example, United Connections, a disk-based service allowing travelers to make their
own bookings, is estimated to save airlines up to $50 for a typical $500 round-trip fare.
Digital marketing is an attractive proposition for many more categories than is
commonly assumed. We would argue that digital marketing can play an important role
in any category in which it makes good business sense to build relationships one
consumer at a time.
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3.2 NEED OF A NEW MARKETING MODEL
The traditional 5P-marketing model — price, product, promotion, package, place — is
not particularly helpful to marketers seeking to capture the benefits of digital
marketing. It assumes, for example, that communication is one way (from the marketer
to the customer), when interactive media so clearly offers an opportunity to establish a
dialog; it assumes a mass-market environment, when interactive media allows
interaction with individual consumers.
The digital marketing model that has been developed is based on a pragmatic
assessment of what seems to work, and what does not, in the interactive age. It is built
around five apparent factors for success:
(1) Attracting users
(2) Engaging users' interest and participation
(3) Retaining users and ensuring they return
to an interactive media-based service
(4) Learning about their preferences
(5) Relating back to them to provide the sort
of customized interactions that represent
the true "value bubble" of digital
marketing (Exhibit 3.1).
28
3.1 Attractive Characteristics of Media

This last point is critical as in most cases it will require marketers to make their
digital marketing initiative part of the existing business system. This presents
important internal and external challenges, such as how to integrate the digital
marketing initiatives with existing marketing programs or information systems, or
how to manage potential channel conflicts with the sales force or traditional
distributors.
Each of the five success factors suggests a number of issues that marketers must
address.
Example
What are the most effective means to attract users to an interactive application? What
is the role of branding? How should you choose an Internet address? What is the
optimal "linking" strategy for a particular marketer? While the answers to many of
these issues will be specific to a given marketer, research is beginning to identify the
factors that allow companies to get more from their digital marketing efforts.
Over the next three to five years, digital marketing is likely to become an increasingly
significant part of the consumer marketing landscape. For many marketers it will
present formidable opportunities. For those who cannot keep pace, it might pose a
serious threat. It is therefore imperative that marketers begin to think about the role of
interactive media in their industry, and prepare to take appropriate action.
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Exhibit 3.2 Bazee
Avnish Bajaj & Suvir Bajaj Founders,
Bazee.com
This auction site lets you buy or sell a range of products. Revenue is not
from ads, it is from fees for listing buyers and sellers on the site; cyberlaw
complexity keeps it out of the actual transactions. It successfully applies
B2B and C2C models; Bajaj claims, "Rs 10 crore worth of trading on the
side. It follows the Retail Model.
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In one industry after another, aggressive Internet upstarts are putting established
brands at risk, creating very strong brand recognition and enjoying explosive visitor
growth (Exhibit 4.1). The reason may have less to do with the established brands
themselves than with their managers. Marketers know what a brand is in the physical
world: the sum, in the consumer’s mind, of the personality, presence, and performance
of a given product or service. These "3 Ps" are also essential on the World Wide Web.
In addition, digital brand builders must manage the consumer’s on-line experience of
the product, from first encounter through purchase to delivery and beyond.
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Building Digital
Brands
Building Digital
Brands
4.1 Consumers Turning to Digital Brands

Digital brand builders should care about the consumer’s on-line experiences for the
simple reason that all of them—good, bad, or indifferent—influence consumer
perceptions of a product’s brand. To put it differently, on the Web, the experience is
the brand.
Example
If a consumer buys lipstick from a retailer in the physical world and has an unpleasant
in-store experience, she is more likely to blame the retailer than the manufacturer. But
if the consumer purchases that same product from Procter & Gamble’s Reflect.com
Web site, her wrath is more likely to be directed at P&G. Thus the on-line marketer’s
objective shifts from creating brands—at least as defined in the off-line world—to
creating Internet businesses that can deliver complete, and completely satisfying,
experiences.
Yet many marketers, particularly those whose experience is limited to the off-line
world, lack a coherent framework and concrete methods for achieving the broader
objectives of on-line brand building. These marketers need an approach for aligning
the promises they make to consumers, the Web design necessary to deliver those
promises on-line, and the economic model required to turn a profit. These three
elements—the promise, the design, and the economic model—together form the
inseparable components of a successful Internet business, or what might be called a
digital brand.
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4.1 HOW TO BUILD AND MANAGE DIGITAL BRANDS?
How do marketers build and manage digital brands? The marketer’s first goal should
be to select the core promise for a truly distinctive value proposition appealing to the
target customers. Five of these promises are especially effective.
Digital brands that make tasks—from buying a book to searching for the best price—
faster, better, and cheaper offer the promise of convenience. Amazon.com, like most
first-generation electronic businesses, is fundamentally built on this promise.
Brands that make people feel like winners in whatever activities engage them offer the
promise of achievement. E*trade, for example, promises to help consumers manage
their finances successfully. It has gone beyond the basics—a portfolio of financial tools
and research—to offer many helpful innovations, such as securities-tracking and -alert
services.
Games and other activities designed to engage (and even thrill) consumers offer the
promise of fun and adventure. Often these activities make use of "immersive"
technologies, which, for example, allow electronic spectators of a marathon to hear a
runner’s heartbeat. Digital brands such as Quokka Sports are building their entire
businesses around immersive technologies.
Such companies as GeoCities (which helps consumers express themselves by building
and displaying their own Web pages) offer the promise of self-expression and
recognition. Ralston Purina Dog Chow’s site allows consumers to create home pages
that display pictures of and stories about their pets.
Clubs or communities offer the promise of belonging, as well as concrete advantages.
Women, for example, can exchange stories and tips with one another at the
iVillage.com site. Mercata.com provides a more tangible benefit by aggregating the
purchasing power of its community of users and thus helping them get better prices for
a broad range of merchandise.
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4.2 FROM PROMISE TO DELIVERY
The promises made by digital brands are not unique to the Internet, but the medium’s
interactive capabilities make it easier for digital brands to deliver on their promises
quickly, reliably, and rewardingly. They often do so with a scope that their landed
counterparts would be hard-pressed to match. In practice, this means that promises
must be translated into specific interactive functions and Web design features
collectively giving consumers a seamless experience. Such design features as one-click
ordering and automated shopping help deliver the promise of convenience;
collaboration tools such as chat rooms or ratings functions make it possible to realize
the promise of belonging.
Managers shouldn’t underestimate the challenges of this translation process. What, for
instance, does it mean to build a digital brand around a promise of convenience in the
grocery industry? What kind of content, if any, do you need? And how about chat
rooms, personalization, one-click ordering, and collaborative filtering? Digital brand
builders can’t afford to fall short of what they have promised, since competitors are
always a click away, but they waste capital if they offer more than is necessary to make
sales and keep customers.
Technology dramatically differentiates digital brands—for both customers and
shareholders—in ways that will become increasingly clear as they enter their second
and third generations. To be certain of identifying all of the designs that make it
possible to deliver on a promise and to build a viable economic model, today’s digital
brand builders must explore at least six groups of design tools. These tools are
sufficiently robust technologically to help create a distinctive and relevant user
experience, and they are beginning to demonstrate their ability to make money for the
digital brand builders using them.
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Personalization Tools
Tools such as the software that creates personalized interfaces between e-businesses
and customers, hold tremendous promise for value exchange and contextual commerce.
To be sure, the value of personalization has yet to be fully demonstrated in practice.
(Fewer than 15 percent of visitors to Yahoo! have chosen to set up a "My Yahoo!" page
for themselves.) Personalization tools also present risks, as well as real operational
challenges, such as managing privacy, intrusiveness, and opportunity costs. For that
reason, many practitioners still question the short-term return on investments in
personalization tools.
Collaborative Tools
They facilitate word of mouth, or what might be called "branded person-to-person
communications"—for instance, the ratings that buyers offer sellers on eBay, the
Lands’ End "shop with a friend" feature, Raging Bull’s discussion boards, and Pert’s
viral marketing (which encourages consumers to e-mail their friends instructions for
obtaining free Pert Plus samples). Collaborative tools such as consumer ratings, though
essential for content- and community-oriented digital brands, are underutilized.
Purchase-process Streamlining Tools
They eliminate such physical-world constraints as the need to walk into a store to
purchase a product. Amazon’s one-click ordering system, for example, eases
transactions by sparing repeat customers the inconvenience of inputting transaction
data. Peapod’s shopping lists save consumers time by recording the products they
purchased previously. The fact that most e-shoppers drop out of the buying process
during the last clicks suggests that improvements along these lines might be very
worthwhile.
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Self-service Tools
They allow customers to obtain answers and results without the delays and
inconsistencies that more often than not characterize human efforts to provide
assistance. Such tools include software for tracking orders, preparing statements, and
changing addresses on-line. Although incumbents often have difficulty integrating these
Web-based tools with legacy systems, the tools are indispensable for banks, retailers,
and other e-businesses that handle large volumes of transactions.
Do-it-yourself product design tools
They allow consumers to customize products and services, either with the help of
configuration options or from scratch. Dell Computer, for example, lets customers
design their own systems on-line by choosing from a range of options; customers of
Music.com and Listen.com can download the music of various artists onto a single
compact disc. But the need to create manufacture-to-order systems to capture the
potential of these tools may make them uneconomical in industries that, unlike
software and music, are not based on information.
Dynamic-pricing tools
They overthrow the tyranny of the fixed retail price, allowing prices to fit the
particular circumstances of individual transactions. Such tools, which come in many
forms, include eBay’s and uBid’s auctions and Priceline’s offer to "name your own
price." Dynamic pricing, a potential "killer application" in many categories, could
permit customers to make a wider variety of trade-offs between price and value than is
possible in the current world, where most sellers offer a single fixed price to all buyers.
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4.3 RETHINKING THE BUSINESS MODEL
As digital brand builders align the promise and the design, they must also align the
economic model that will sustain their businesses. For most managers of established
brands, the very process of taking them on-line will force a fundamental
reconsideration of the business. Digital brands offer a richer consumer experience than
their physical-world counterparts, so they can and should make money by tapping into
broader revenue and profit pools than any single physical-world business might enjoy.
Fortunately, the range of economic opportunity for a digital brand expands
dramatically as it draws from traditionally unrelated revenue and profit pools.
The economic model must be expanded because building digital brands around
consumer experiences is expensive. A number of different sources of revenue ultimately
makes it possible for a digital brand—and the e-business that supports it—to deliver a
richer experience to the consumer. Since on-line consumers expect combinations of
product types and functional benefits different from those expected by off-line
consumers, marketers must adopt several different economic models to succeed.
There are six basic economic models (Exhibit 4.2). The success of an Internet brand
rests on the skill with which it combines two or more of them.
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1. Retail model: Vendors or products are aggregated to facilitate
transactions for buyers.
2. Media model: A company aggregates audiences to generate revenue from
third parties, such as advertisers, in the manner of the
music channel MTV, the CBS television network, and
Newsweek magazine.
3. Advisory model: An expert (such as an investment adviser or a personal
shopper) offers consumers unbiased advice for a fee.
4. Made-to-order manufacturing model: A business manufactures customized products,
such as locomotives, in one-time production runs.
38
4.2 New Business Model Combinations On-line

5. Do-it-yourself model: A business (such as McDonald’s or IKEA) provides
for or facilitates consumer self-service.
6. Information services model: A business (such as ACNielsen or J. D. Power and
Associates) collects, processes, and sells information.
Priceline, for example, combines the retail and media models and therefore enjoys
economics that are vastly superior to those of other travel agencies, both on- and off-
line. Applying the retail model, the company aggregates suppliers of travel services,
such as airlines. Applying the media model, it "monetizes" its audience to third-party
advertisers by suggesting products and services to its customers.
Dell also combines two models—the made-to-order manufacturing and do-it-yourself
models. The company offers computer shoppers an unparalleled choice of features and
permutations. In addition, its on-line menu and instructions guide consumers through a
selection process that is speedier and less prone to error than one handled by live
customer service representatives. For Dell, the superior process is also less costly.
Creating winning digital brands requires managers to reconsider how they view both
the Internet and branding. Off-line brands have long thrived by delivering narrow
solutions to limited customer needs. On-line, however, customers have learned to
expect that the companies they patronize will meet a much fuller spectrum of their
needs and desires. To succeed on-line, those companies will have to create full-fledged
Internet businesses, or digital brands, that can fulfill this expectation.
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Can a marketer be trusted with sensitive personal and financial information?
Consumers increasingly expect their identity and personal information to remain
confidential when they go on-line to shop, and that, coupled with fear of on-line fraud,
is what stops many consumers from even considering digital transactions.
The Georgia Institute of Technology, in its "Tenth WWW User Survey," found that
only 4 percent of on-line users routinely register at Web sites, and at some sites two-
thirds of those not registering report a lack of trust as one of their reasons. They will
become buyers only when marketers overcome the lack of trust that paralyzes many
would-be Net shoppers. In response to those security concerns, marketers are working
to build trust with consumers through their on-line interactions. The level of trust
grows as marketers and consumers engage in a gradual "value exchange," through
which consumers provide marketers with personal information and are rewarded in
turn with products they actually want.
McKinsey research on more than 50 e-businesses shows that the on-line marketers
pacing their industries do so by embedding trust into their interactions with
consumers. They are forging a broad logic of trust based on constant and interactive
value exchange between the buyer and seller. A company that creates and nurtures
trust finds that customers return to its site repeatedly. CDnow, Amazon.com, and
Onsale generate well over half of their sales from site loyalists. Contrast this with a
typical underperforming retail site, where only a quarter of sales come from repeat
buyers. Sites without a core of loyal customers must devote more capital to acquiring
customers and eventually may find it difficult to survive.
40
Building Trust in
Brands
Building Trust in
Brands

5.1 Building Trust: Creating Site Loyalties
5.1 CLIMBING THE TRUST PYRAMID
Building trust that leads to satisfied customers is complex—but essential—for
marketing executives. We have identified six elements that build a "trust pyramid"
(exhibit 5.1). The base of the pyramid shows the three core elements needed just to be
in the game: state-of-the-art security, merchant legitimacy, and robust order
fulfillment. Winning marketers move well beyond the basics with more subtle trust
builders that differentiate them from the also-rans: consumer control, tone and
ambience, and, at the highest level, consumer collaboration. As the baseline level of
trust and security rises, these points of distinction become more critical. Taken
together, the six elements of trust create the confidence needed to turn browsers and
ordinary customers into site loyalists.
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State-Of-The-Art Security
Use the best security measures on your site, and tell your consumers about them in
easily understandable language. Shoppers at Netmarket are assured of "guaranteed
safe shopping" with a no-compromises promise: "At Netmarket, you can shop with
confidence. We use the latest encryption technology, digital certificates, secure
commerce servers, and authentication to ensure that your personal information is
secure on-line." Marketers at Lands’ End also understand how to reassure their
customers on security issues. Its site states, "You have no credit card risk. Period."
Merchant Legitimacy
Brands are important on the Web. They help shoppers sort out their choices when they
have a limited range of clues as to the quality and function of a product. Familiar
names with established records of performance go a long way toward building trust—
so long as marketers continue to deliver that performance through their Web ventures.
If your company lacks a recognizable consumer brand, three tactics can get you in the
game:
1. Sell branded products. Netmarket, for example, depicts thousands of brands on its
site, from Panasonic DVD players to Reebok shoes. The site’s tag line is "name
brands at warehouse prices."
2. Ally your product or service with an established brand. Tel-Save, an unknown
phone service provider, secured a privileged position on America Online, a brand
recognized by 40 percent of US households. Now known as Talk.com, Tel-Save
signed up 1.8 million new customers in the year after the deal was signed in
December 1997. Its sales increased by 47.2 percent from 1997 to 1998.
3. Encourage prospective customers to sample your services through low-risk trials
and creative offers. E*trade lets prospective investors take part in contests without
risking real money. The Wall Street Journal offers a two-week free trial of its
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interactive edition. If consumers like it, an annual subscription costs $59 (print-
edition subscribers pay $29 for it).
Fulfillment
Great security and brands can go only so far; a trust-building site must also fulfill
orders efficiently and with minimal hassles. Nothing alienates a buyer more than
getting thrown off-line, finding the site frozen, or making a wrong entry that causes the
loss of pages of entered information. And at some sites, prospective buyers must slog
through a lengthy registration process before discovering that sales taxes, shipping, and
handling charges greatly increase the total price of their purchase. The best practice:
explain all costs, and have an infrastructure that gets the right product to the right
buyer in a reasonable period.
Leading Web companies are streamlining the purchase and fulfillment process.
Amazon.com has led the industry with a "1-click" mechanism, through which buyers
enter an address and credit card information for the first sale only. After that,
Amazon.com remembers the details. Marketers also are beefing up customer service to
provide fast and accurate answers to queries arriving on-line and through call centers.
In practice, even the best companies will sometimes stumble in fulfillment. But a
mishap can be an opportunity for a company to show its best face and build trust with
its clientele. Consider the experience of Hastings Entertainment and its gohastings.com
site. The company announced its site with newspaper ads offering a package of three
popular video movies for $9.99. The trouble was that buyers reaching the site found a
notice saying it was still under construction. By afternoon, the message had been
replaced with a toll-free number through which users could place an order for the
videos. Buyers also got a T-shirt as part of gohastings.com’s apology. What could have
been a marketing meltdown was transformed into a reasonably happy story.
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Control
Even with credit card security assured, consumers learn to trust the marketers they
deal with only when they know that they—not the marketers—control access to
personal information. Marketers who ask permission for personal details are taking the
smart approach. E*trade, for example, discusses the benefits provided by cookies on a
user’s hard drive (the cookie ensures that preferred settings appear without the
customer logging in each time), then asks the user for permission to place a cookie.
Some marketers are recruiting consumers to serve on panels that independently audit
privacy policies. Others use third-party audit services such as those of the Council of
Better Business Bureaus (BBB). Sites may qualify for the BBBOnLine seal when they
adopt robust privacy policies and agree to consumer-friendly dispute settlement
procedures. More broadly, consumers like to feel that they are in control of the buying
process. Accordingly, marketers at the GMBuyPower site provide consumers with
comparative information on competitors’ cars. After all, consumers will go somewhere
to find that information. GM builds trust by letting consumers know that it
understands that they have a choice and that they control the buying decision.
Tone And Ambience
Trust building encompasses more than the strictly technical aspects of a Web site.
Consumers want to know that marketers will handle their personal information with
sensitivity. Without ironclad confidentiality, consumers will never move ahead with a
value exchange. Leading marketers post an easy-to-read privacy statement and explain
how they collect and handle customer information. Lands’ End addresses this issue on
its Landsend.com site, stating, "We’ll never misuse the information you provide us."
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Design and content are other critical elements. "E-Commerce Trust," a January 1999
study by Cheskin Research and Studio Archetype/Sapient, points to the importance of
ease of site navigation as one influence. A site’s appearance also says a great deal about
a marketer. Value America, a virtual retailer, stresses the importance of "white space"
and presents products in an uncluttered, friendly setting that shoppers find appealing.
Drawing on the next wave of personalization technologies, marketers will be able to
customize the on-line store ambience for each consumer. For example, on a music site,
a classical music aficionado might receive an audio selection and visual merchandising
that would reflect that sensibility; a heavy-metal fan would enjoy a more raucous
presentation.
Marketers set the right tone with their customers when they are straight about all
aspects of the relationship, such as how they deliver services. Amazon.com now lists all
its "publisher-supported placements" and explains its acceptance of co-op funds after
controversy over its unstated policies. Other marketers carefully indicate that pricing
may vary according to the channel through which a product is sold. The home page of
Tower Records notes, "Pricing at towerrecords.com applies for on-line purchases only.
Sale pricing may not apply in Tower retail stores."
Collaboration
A site nurtures trust when it encourages its customers to inform each other about the
company’s product and service offerings. A Yankelovich Partners survey reveals that
consumers consider other users of a product to be the most trusted source of advice
when considering a purchase of that product. Thus, chat groups let consumers query
each other about their purchases and experiences. Amazon.com customers, for
example, have posted hundreds of wildly divergent opinions about a single book.
One site that built an entire business and brand by innovatively collaborating with
consumers is eBay. Its governing model of trust is its feedback forum, where buyers
and sellers rate each other. The detailed records of transaction histories show eBay
45

users what they can expect from other users. The Web site also uses its network of
users to spread the word about its activities, a tactic known as "viral marketing." That
is, users can e-mail auction notices to their friends.
Corporations also can choose to separate themselves from the opinion process by
linking customers to external sites. Auto manufacturer Saturn has links to auto
magazines and price and ratings guides.
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5.2 BUILDING TRUST
Bringing the six elements of trust to your Internet value proposition, though, does not
automatically lead to deep, trusting relationships. That comes through a step-by-step
process in which the consumer and marketer exchange value. Each time the consumer
volunteers some personal information, the marketer rewards the consumer with a more
personalized service. This mutual give-and-take eventually leads to an advanced
collaboration based on trust.
The research has identified four stages of trust building:
Attraction
At the first stage, the consumer browses the site and even makes a transaction. No real
relationship exists between the marketer and the consumer, and none may be
warranted. The best strategy is to provide the consumer with information, without
demanding any in return. At first blush, this may seem like an imbalance between what
marketers give and what they get back. But what the consumer is giving the marketer
is something quite valuable: time and attention, along with a view of how the site is
traversed.
The time and attention translates into the "mind share" needed to create a brand
preference. The average consumer on Ralston Purina’s Dog Chow Web site, which
offers no product for sale, spends more than six minutes per session learning how to
care for pets. That’s far more time—and concentration—than consumers devote to a
30-second TV ad.
47

User-Driven Personalization
At the second stage, consumers start shaping Web pages to their specific tastes. For
example, CDnow customers can personalize their home pages with favorite artists and
wish lists. The company shows that it is willing to deliver some value to the consumer
before gaining financially. Charles Schwab now invites users to set up a personal page
through the MySchwab service, where users can not only track stocks but also get
customized sports news, weather information, and even cartoons. Users aren’t required
to open a Schwab account to do so.
Marketer-Driven Personalization
In the third stage, marketers begin using insights provided by consumers to beam
information back to them. Thus, CDnow uses its knowledge of consumers—developed
at the earlier stages of trust—to suggest products they might like, which consumers
then rate as either on- or off-target. As the process continues, CDnow learns
consumers’ preferences and zeroes in on what they really like. It is worth emphasizing
that marketers should rein in their urge to make immediate use of data and
personalization technologies. This approach takes patience, a trait lacking at many
marketing organizations. Too often they bombard consumers with promotional offers
as soon as they get their hands on an e-mail address. We suggest a gradual approach, as
nothing aggravates many Internet users more than unsolicited e-mail.
A best practice is to let the user set the pace of personalization and contact from
marketers. User-driven personalization should precede marketer-driven offers. Recent
research by Professor Youngme Moon of the Harvard Business School has shown that
premature personalization can backfire. Moon found that consumers were less likely to
buy products pitched to them through messages if the messages were based on
information they had not given to the marketer themselves. According to "Is Your Web
Site Socially Savvy?" a May–June 1999 Harvard Business Review article, consumers
were more likely to buy when the message was personalized and based on information
they had volunteered.
48

Trust-Based Collaboration
At the final stage, the marketer and the consumer work together closely. The consumer
gives the marketer access to the most sensitive personal information (family, finances,
or health) and in turn gains customized experiences and consultative problem-solving
assistance. In our view, very few on-line marketers have reached this level of trust with
their consumers.
The pace of value exchange varies by industry and situation. For example, mortgage
shoppers may provide financial information in their very first interaction if they need a
quick answer. In other situations, the process moves more slowly. And because costs
rise as marketers go up the trust staircase, they must decide just how far they need to
go to create the most profitable relationships. Trust building at a basic level may be
enough for some marketers, particularly if greater trust does not bring greater
spending by consumers.
Only by sustaining trust can marketers expect to establish enduring relationships with
consumers, and it is by keeping a central focus on that idea that marketers build a
value exchange that delivers consistent and progressive mutual benefits. With the six
building blocks of trust in place, marketers should be able to chart a course for
building great on-line businesses.
49

Fabmart is one e-tailer, which keeps hitting the headlines often, as much for its new
initiatives, as well as for reports that say that Rupert Murdoch and Dhirubhai Ambani
have looked at equity stakes in the e-tailer. So, what makes this 10-month-old online
store click? Fabmart went online on September 29 last year, and processed 12
transactions in its very first day of operation. What followed were days of struggle
when the store survived on minimal transactions. But shoppers kept trickling in, and
there was no day when Fabmart failed to attract at least one request. The store now
registers about 250 transactions a day, with the average transaction amount hovering
at around Rs 200.
A leading IT magazine in its recent survey on Indian e-commerce engines picked
Fabmart as the ‘best focused’ e-commerce shop. More recently, readers of Chip
magazine voted Fabmart the ‘best virtual superstore’. Fabmart acknowledges that not
all e-commerce ventures will survive and expects “most of them to fall by the wayside”.
Talking to Praxis, K. Vaitheeswaran, Vice-President, Marketing, Fabmart, outlined
how his company’s e-tailing model is different from horizontal portals and other e-
commerce engines. Being an early mover, and now an established one, the Fabmart
model is now considered a benchmark for financial institutions looking at e-commerce
ventures.
50
Case Study –
FABMART
Case Study –
FABMART

6.1 HOW IT DIFFERS
According to Vaitheeswaran, horizontal portals offer all things to all people, and online
shopping will remain a small part of such ventures. These portals are not focussed e-
commerce engines. Fabmart believes in providing depth rather than width. Starting
with books and music, it now offers a wide collection from within these categories and,
according to Vaitheeswaran, it focuses on providing high levels of customer
satisfaction. The store is designed on the ‘find what you need fast’ policy. Take the
bookstore, for instance. A shopper can use the option of searching either by title, or
first/last name of the author. There is also an additional facility of advanced search for
those who would like to search by combining two or three options.
The search options are similar for the Fabmart music store. Once the customer has
selected the items to be purchased, he/she then clicks on the ‘add to shopping cart’ icon
and goes through the entire shopping process. At the time of confirming his/her order,
the shopper is given a reference number that can be used to track order status.
Fabmart is banking on the virtual store’s depth in offerings and customer satisfaction
initiatives to add value to its e-tailing business. And this, it hopes, will be the final
differentiating factor.
51

6.2 THE FULFILMENT PROCESS
It’s easy to lose an online customer. For him to prefer an online store to a
neighbourhood shop would have been a difficult decision involving a fundamental
behavioural change. And the e-tailer just cannot disappoint the customer in service or
delivery. In fact, Fabmart is to shortly introduce an online call center (live chat) where
a customer can get instant feedback on his/her queries. Fabmart’s fulfilment process
can be broadly classified into:
Sourcing involves collecting various customer orders from wholesaler/distributor/
production agencies on an ongoing basis.
At the consolidation stage, the sourced items from the wholesaler are segregated
according to individual orders and finally packed on the basis of individual
consignments. Once the allocation of each order is completed, shipments are made
through Blue Dart couriers. The key element here is Fabmart’s completely automated
52
D e liv e r y
O r d e r C o n s o lid a tio n
S o u r c in g
6.1 Fabmart – Fulfillment Process

and Web-based solution, which works on a virtual inventory model where Fabmart
does not hold any inventory at all.
The store is still able to meet the delivery commitment within 72 hours typically.
Fabmart claims to ship about 95 per cent of its orders within 48 hours, a feat it can
achieve because of its rapport with the big book and music companies in India.
Fabmart also has a seven-day, noquestions- asked return policy under which customers
can return any items, with a small note stating the reason for dissatisfaction, and
Fabmart bears all shipping expenses.
53

6.3 THE PAYMENT MECHANISM
The e-tailer has put in place two kinds of security mechanisms – one for debit/credit
card transactions and the other for confidentiality of personal details. Fabmart and
Citibank launched what they tout as ‘the world’s most secure’ payment process on the
Internet in December 1999. In this mechanism, the card number is not provided to the
online store but given directly to the bank. In addition, the customer needs to key in the
PIN to ensure that no misuse of the card is possible. And since this is done on an SSL
(Secure Socket Layer) encrypted link, accessing the card number while it is in transit is
not possible. Sensitive customer details are accessible only to officials in the rank of
Vice- President and above and not to all employees. Fabmart’s privacy policy clearly
states that customer details are not sold, rented or leased out to third parties.
6.4 WHY FABMART OUTSOURCES
Fabmart outsources most functions which have no direct bearing on the customer. For
instance, hosting is managed by Bharti Telecom, the payment gateway is outsourced to
Citibank and networking is in the hands of Wipro and Compaq. According to
Vaitheeswaran, Fabmart has identified four areas likely to impact a customer: the
brand, the relationships with book and music companies, the store itself, and customer
fulfilment. All other functions are outsourced. Even customer fulfilment, to an extent is
managed through outsourcing. Blue Dart delivers goods to 850 points across the
country. Similarly, execution of responses to Fabmart’s customers is done through an
external eCRM firm. If a portal is compared to a human body, all its parts except the
brain can be outsourced, and Fabmart claims to be the brain.
One frequently asked question is how viable is outsourcing. While it is true that
Fabmart tends to spend more resources on the outsourcing model, according to
Vaitheeswaran, it certainly pays, especially when the time gained is considered. If
Fabmart had to develop and execute all the operations by itself, it would not have been
possible for the company to make the site functional in six months.
54

6.5 FABMART’S LONG-TERM VIABILITY
Fabmart’s advantage may be that it is a pure e-commerce venture; advertisement
revenues are not counted upon. In fact, the store does not welcome ads, except those
relating to books and music. Any available virtual real estate is used for in-shop
promos. With initial VC funding of about Rs 5.5 crore, the online store recently
mopped up another Rs 25 crore with second round funding from venture capitalist
Chrysalis. With a registered customer base that is likely to grow, the store is confident
about revenue flow, and Vaitheeswaran says Fabmart hopes to break even by its third
year when it expects business turnover to touch Rs 45 crore.
A jewellery store was launched recently, while a grocery shop is on the anvil, with the
ultimate aim to emerge as a focused virtual superstore. The jewellery store, which went
online in June with about 5,000 items, targets the impulsive buyer. And jewellery
transactions are expected to drive up the average value of an online transaction. The
grocery shop will attract online customers for need-based purchases. Fabmart’s aim is
to achieve a mix in customer demographic profile – with both impulsive and need-
based consumers. Fabmart would also need to gear up for competition from players
such as Shoppers’ Stop and eCrosswords (ecommerce portals of Shoppers’ Stop and
Crosswords, expected to be online by October).
55

With a customer base of over 25,000, Fabmart hopes not too many will switch loyalties.
The e-tailer hopes to consolidate further in the time that competitors will take to adapt
to the dynamics of the Net business. Says Vaitheeswaran: “There’s nothing like time
gained.”
56

The first full-fledged website in the Indian market to start broadcasting to cater to this
need was Contest2Win (www.contest2win.com), now simply c2w.com, keeping in mind
the impatience levels of users online. C2W edged its way slowly but steadily into the
minds and onto the fingertips of Indian users by striking barter deals which involved
their URL (Internet address) being mentioned in traditional media in exchange for
hosting contests and promotions on their site. With enthusiasm that ran deep, but
pockets that didn't, Alok Kejriwal, CEO, did not spend on the traditional advertising
and PR channels from the time they went live in November 1998. On the other hand,
Hungama.com took the other route, living upto its name when it launched in March 99.
Online advertising, professional PR, and attractive promotions in prominent net-savvy
community hangouts like night clubs and cybercafes in Bombay, Bangalore and Delhi
all went towards literally raising a hungama about this new website in almost no time at
all!
The business model of sites like C2W and Hungama is simple - they believe in the
Internet maxim: "content is king". And they keep that content fresh. Of course, content
for them is not news and features, but contests, promotions and incentives rewarding
users for spending time on their sites. And there are four steps involved in making this
business model pay off for them:
57
Case Study –
C2W & Hungama
Case Study –
C2W & Hungama

7.1 CREATING CONTENT
Both Hungama and C2W have aggressive teams that interact with various brand and
marketing managers to get more brands on their sites, with hundred of big brands like
Philips, HLL, UDV and Sony already enticed by what the medium has to offer. Contests
and promotions are either created exclusively for the Net, or are online adaptations of
existing traditional world contests.
7.2 ATTRACTING USERS
C2W has emblazoned its brand - their URL - into the minds of current and potential
members by cross promotion in traditional media like outdoor, print, television, and
even on product packaging. Hungama chose to storm the market and create an identity
and brand through physical contact in the real world where their target audience
cannot miss them. Special incentives to cybercafe owners also ensures prominent
display and rewards for getting their members to sign up.
7.3 KEEPING USERS
By constantly adding new contests and promotions to their sites, C2W and Hungama
ensure that their visitors keep coming back. Hungama.com has even gone to the extent
of giving away prizes every hour, by the hour, with over 100 prizes being distributed
daily from their office!
58

7.4 SELLING EYEBALLS
Today, C2W has a database 35,000 strong (growing at 35% per month), all with
authentic registration details - after all fake details means that your prize may never
reach you. Hungama, though a recent entrant, is fast catching up. As these numbers
grow, these eyeballs will attract advertisers to the sites, bringing in advertising revenue,
either for banners or for paid promotions. C2W already has Intel advertising on their
pages, while the Hungama pages are still banner-free.
7.5 THE FUTURE
C2W has already finalised plans for Pan Asian reach, and are looking for strategic
partners for the American and European market, to become the world's contest portal -
a one-stop site for contests and promotions. "Free" seems to be a four lettered f-word
for Neeraj Roy, CEO, Hungama.com who emphatically states that his site is not a
contest freebie site - it is an ePromotions site that will continue helping brands get their
message to online customers through incentives.
Whatever tag you put on them - be it freebies, incentives, contests, promotions, or
brand-building exercises in cyberspace, there are more eyeballs being attracted, and
slowly but steadily, more brands being attracted by these eyeballs.
59

Conclusion
The world of consumer products is quickly changing and developing through new
technology and an evolving knowledge of what consumers really prefer – both online
and in the real world.
The explosion of Web content has grown faster in the last year than Web usage. As a
result, it is actually harder to get noticed and have people stay around a site than it was
three years ago. Marketers not only must get people to their site, they must get them
comfortable enough to place an order. As a result, one of the biggest challenges on the
Net is creating brands-strong ones like E Bay, Yahoo, or Amazon that achieve an image
of quality, trust, and familiarity.
Online building brands has presented us with a whole new kind of channel. The
concept of the brand building has taken on a new, more experiential shape—the ability
to surprise and delight in the moment. That is the really important aspect of the
medium that’s not yet as prevalent in more traditional advertising and offline direct
marketing models. But fundamentally, there is no difference between an offline and an
online relationship. Consumers are still people, and they still form relationships with
brands by making emotional connections, regardless of the channel.
One thing is for sure
The Internet is changing the methods of product selling day by day. Instead of having a
supermarkets and malls the days are not far when the basic goods will be sold through
Internet and these will create a true millennium generation and hence at that moment
of time we can show our little one a perfect, “Generation Gap”.
61

Bibliography
Books
1. E- Brands by Philp carpenter
2. Global E-commerce and online marketing by Nikhilesh Dholakia
3. Internet marketing research by OOk Lee
4. Principles of marketing by Philip Kotler
Magazines
1. Business & Economics Page 45
2. Advance E’dge MBA IMS Publication, August 2005, Pg.21
3. Global Educator IMS Publication, August 2005, Pg.5
4. Global Educator IMS Publication, September 2005, Pg8
5. Business & Economy July 2005, Pg.20
6. Outlook August 2005, Pg.16
7. Business Today July 2005, Pg.21
Internet
1. Thomsonlearning.com
2. Bloonet.com
3. www.infotech.com/MR/Industry%20Center/Wholesale%20and
%20Retail/ Governance/Building%20Digital%20Brands.aspx
4. www.mckinseyquarterly.com/ ab_g.aspx?ar=860&L2=16&L3=16
5. www.ceoexpress.com/asp/mckinseyalls4.asp?id=m0173
6. www.themanagementor.com/kuniverse/
kmailers_universe/mktg_kmailers/LetsGoDigital.htm
62

Places Visited
1. British council library,
2. Mittal chambers, Nariman point.
3. IMC, Churchgate.
Newspaper
1. International Times 2nd
, 6th
, 7th
, 8th
, 11th
, 15th
, 19th
August
2005.
While Fabmall as a company was incorporated only in December 2002, it has a history of operations,
which is much older. .
In September 1999, six professionals came together to set up Fabmart (www.fabmart.com) as a
focused online retailing company and since then, it had built for itself a strong online brand and
presence. With a mixture of great merchandise and excellent customer service, fabmart.com had
also built up a loyal customer base, both within and outside India.
In January 2002, keeping in mind the emerging retailing trends worldwide, where many successful
global retailers (Walmart, JC Penney, Nordstrom, Tesco etc.) were vigorously employing a multi-
channel (physical stores, telephone orders, Internet etc.) approach to retail to customers, Fabmart
also decided to expand into a physical chain of grocery stores, apart from electronic retailing. As this
initiative took off, more business opportunities started emerging, each of them opening up fresh
revenue streams.
To ensure that all such initiatives receive adequate focus and resources and to also make sure the
company now reflected the new ethos and business priorities, it was decided to form a new company
and transfer all Fabmart operations to this new entity - called Fabmall (India) Pvt. Ltd.
Today, Fabmall is poised to grow aggressively across several business areas:
63

1.Electronic Retailing - with a mixture of category based stores and a growing assortment of
merchants using the advanced online technology platform to create their own online web-store fronts.
2.Web Services - using the skill sets built up over the last three years to offer corporates a
combination of services like payment gateways and web based BPO (Business Process
Outsourcing) solutions.
3.Physical Grocery Chain- a chain of grocery supermarkets in Bangalore with plans to expand into
multiple cities and with a mixture of different physical retailing formats.
64

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