A REPORT BY ZAIN BHIKA AND S.

ARSHAD HAIDER
Introduction:

The New Economy:

The digital revolution has placed a whole new set of capabilities in the hands of consumers and businesses. Consider
what consumers have today that they did not have yesterday:

• A Substantial increase in buying power. Buyers today are only a click away from comparing competitor
prices and product attributes. They can get answers on the internet in a matter of seconds. They do not to
drive to stores, park, wait on line, and hold discussions with salespeople. On Priceonline.com, consumers can
even name the price they want to pay for a hotel room, airline ticket, or mortgage, and see if there are any
willing suppliers. Business buyers can run a reverse auction where sellers compete during a given time period
to capture the buyer’s business. Buyers can join with other to aggregate their purchases to achieve deeper
volume discounts.
• A greater variety of available good and services. Today a person can order almost anything over the internet:
furniture, washing machines (Sears), management consulting (Ernie), medical advice (cyberdocs).
Amazon.com advertises itself as the world’s largest bookstore, with over three million books; no physical
bookstore can match this, Furthermore, buyers can order these goods from anywhere in the world, which
helps people living in countries with very limited local offerings to achieve great savings. It also means that
buyers that buyers in countries with high prices can reduce their costs by ordering in countries with lower
prices.
• A great amount of information about practically anything. People can read almost any news paper in any
language from anywhere in the world. They can access on-line encyclopedias, lexicon, medical information,
movie rating, consumer reports, and countless other information sources.
• A greater ease in interacting and placing and receiving orders. Today’s buyers can place orders from home,
office, or mobile phone 24 hours a day, 7 days a week, and the orders will be delivered to their home or office
quickly.
• An ability to compare notes on products and services. Today’s customers can enter a chat room centered on
some area of common interest and exchange information and opinions. Women can visit iVillage to discuss
common family problems; movie lovers can visit any number of movie chat rooms to share ideas.

The Major Drivers of the new economy:

Many forces play a major role in reshaping the world economy, among them technology, globalization, and market
deregulation. Here we will describe four specific drivers that underpin the new economy:

• Digitalization and Connectivity

• Disintermediation and Reintermediation
• Customization and Customerization
• Industry Convergence

Digitalization and Connectivity

In the past, most appliances and systems__ such as the telephone, the wristwatch, recorded music, and panel games__
operated with analog information. Analog information is continuously variable in response to physical stimuli: thus a
phonograph plays music by responding to the physical grooves in the record. Today most appliances and systems
operate with digital in formation, which coverts text, data, sound, and images into a stream of zeros and ones that can
be combined into bits and transmitted from appliance to appliance. Software is essentially digital instructions for
operating systems, games, storage, and other applications.
But bits will not reside in separate appliances unless connectivity is established. For bits to flow form one appliance
and location to another, a wired or wireless communications network is necessary. The Internet, the “information
highway,” can dispatch bits at incredible speeds from one location to another. Much of today’s business is carried over
networks connecting people and companies. These networks are called Intranet when they connect people within a
company to one another and to the company mainframe; Extranet when they connect a company with its suppliers and
distributors; and the Internet when they connect users to a large worldwide “information repository.”
Connectivity is further enhanced by wireless communication.
For example previously MCB (Muslim commercial bank) was carrying its business through bunch of filing
system in which it was not easy to control and operate its function as it became much easier in today’s world
through digitalization and connectivity as in recent time it was really a tough task to maintain, operate and
perform their regular tasks property through digitalization and connectivity their profit potential has also
increases even they are offerings are not customized.
(A survey by Jupiter communications found that more Americans would not use or pay for m-commerce because they
did not see a “Killer application,” because the mobile internet is slow, and because the appliances screens are too
small. In contrast, Europe and Japan have and are using better wireless services. M-commerce entrepreneurs need to
focus on converting specific groups to m-commerce; they will make faster inroads by promoting separate service
package for, teenagers, mothers, investors, and executives, than by trying to attract the mass market.

Disintermediation and Reintermediation:

The new technological capabilities have led thousands of entrepreneurs to launch a dot com in the hope of striking
gold. The amazing success of early online dotcoms such as AOL, Amazon, Yahoo, eBay, Etrade, and thousands of
others struck terror in the hearts of many established manufacturers and retailers. For example, Compaq had its hands
tied because it sold its computers through retailers, whereas Dell computer grew faster by choosing to sell online. For
example in our local environment and Aero Asia and Shaheen doing disinter mediation activities in our society
as they are not engaged in online business and services. Where as P.I.A. and Air Blue doing intermediation
activities in our society as they are offering online services and information to their clients for example they are
offering e-ticketing through credit transaction. Established store-based retailers_ notably bookstores, music stores,
travel agents.

Stockholders and car dealers_ began to doubt their future as more businesses went into direct online marketing. They
feared, and rightly so, being disinterred mediated by the new e-tailors.
But disintermediation was only half of the story. Although some established middlemen lost their businesses, new
middlemen sprang up to supply Internet services to both businesses and consumers. Reintermediation took place on a
grand scale. New online middlemen appeared such as mysimmon.com, Evenbetter.com, Buy.com, ShopBest.com,
Bestbook.com, Smartshop.com, and StreetPrices.com.

Priceline.com This website allows people to state a price they would pay for an airplane trip, hotel, mortgage, car
purchase, etc. In the case of car purchase, Price line faxes a potential purchase order to dealers and reports back the
best deal for the buyer, who then can confirm the purchase. Buyers pay $25; dealers pay $75 for this service.

Mysimmon.com this website acts as an intelligent shopping agent (sometimes called a “bot,” short for “robot”) for
consumers looking for the best buys in several categories including books, toys, and electronics. A person who wants a
digital camera can go to mysimmon.com, click on cameras, then digital cameras, then (say) Fuji MX700, and find
which of several merchants offers the camera at the lowest price. Competing bots include buy.com and compare.com

Lifeshopper.com this website allows consumers to specify the type and amount of life insurance they are interested in.
Lifeshopper.com sends back the prices offered by different insurance companies.

As for the traditional “brick only” firms_ such as Compaq, Barnes and noble, and Merrill Lynch_ dragged their feet,
hoping that the assault of “ pure click” (online only) firms would falter or disappeared. Then they started their own
online sales channels, becoming “brick-and-click” competitors. They had to do this carefully in order to retain the
loyalty of retailers, brokers, and agents. The irony is twofold. First, many brick-and-click competitor became stronger
contenders than the pure-click firms, since they had a larger pool of resources to work with and well-established brand
names. And second, many formidable pure-click dotcoms started to falter as investors sensed a bubble, and began to
disinvest, dropping the value of dot.com stocks, causing mass staff layoffs, and sending many__ such as pets.com,
mothernature.com, boo.com, garden.com, eve.com,__ into bankruptcy. At the same time, many other pure-click.-com
are surviving and even prospering in today’s market place.

Customization and Customerization:

The old economy revolved around manufacturing company whose main drive was to standardize production, products,
and business process. They invested large sums and in brand building to tout the advantages of their standard market
offerings. Through standardization and branding, manufacturers hoped to grow and take advantage of economies of
scale. And the key to managing their assets was to establish a command and control system that would run the business
like a machine.
In contrast, the new economy is supported by information business. Information has the advantages of being is to
differentiate, customize, personalize, and dispatch over networks at incredible speed. As company grew proficient and
gathering information about individual customers and business partners (suppliers, distributors, retailers), and as their
factories were designed more flexibly, they increased their ability to individualize their market offerings, messages,
and media. For example, Dell computers invite customers to specify exactly what they want in a computer and deliver
a custom build one in a few days. P&G, on its reflect.com site allows a person to specify needs for a shampoo by
answering a set of questions, and then P&G formulates a unique shampoo for the person. Levis is now able to produce
customize jeans based on a person’s measurements.
In this process we can distinguish between customization and customerization.
Customization means that the company is able to produce individually differentiated goods whether ordered in person,
on the phone, on online. By going online, companies essentially enable consumers to design their goods; in effect, it
enables them to be prosumers, namely self-producing consumers. The company is essentially providing a workshop
where each individual can design what he or she wants.
The company also acquired the capacity to intact with each customers personally, namely to personalize message,
services and the relationship. The customer can request customization of products, services, prices, and every channel.
The combination of operational customization and marketing customirator has been called customerization.
A company is customerized when it is able to discuss with every individual customer and respond by customizing its
products, services and messages on a one-to-one basis.
Customization is not for every company. There are several downsides. Customization may be very difficult to
implement complex products such as automobiles. Customization can raise the cost of good more than the customer is
willing to pay. Sum customers do not know what they want until they see actual product. Customers cannot cancel the
order after the company has started to work on the product. The product may be hard to repair and have the sales
value. Inspired of this, customization has worked well for some products- laptop computers apparel, skincare products,
and vitamins__ and is an opportunity work investigating.

Industry Convergence:
Industry boundaries are blurring at an incredible rate. Pharmaceutical companies, at one time essentially chemical
companies, are now adding biogenetic research capacities in order to formulate new drugs, new cosmetics
(cosmoneuticals) and new foods (nutriceuticals). Film companies such as Kodak are also chemical companies, but they
are moving into electronics to digitize their image-making capabilities. For example Bank Alfalah started of as a
commercial band but through the passage of time they also started their business in telecommunication through
launching Warid Telecom Company. KASB Bank started of as a commercial bank offering various services to
its clients but initially decided to operate an university as well which is known as KASBIT. In Pakistan Pepsi
cola international is being operated by Pakistan Beverages but besides that they have also launched Kurkure
and Lays in our local market in short they have also entered in the business of snacks in our market. LG (Life’s
good) started of as an electronic appliances company offering refrigerator, air-conditioned, television, micro
waves Owen but with advance in telecommunication technology they have also offered mobile phones in our
market and in this way now they are competing with Sony Ericsson, Nokia and Samsung in the current market.
Shiseido, the Japanese cosmetics firm, now markets a portfolio of derma tog drugs. Disney is not only into cartoons
and theme parks, but it makes major films, and manages retail stores, hotels, cruise, ships, and educational facilities.
The merger of AOL and Time Warner has created an online and traditional a hybrid that opens up a host of new
marketing communication options. In all the cases, companies are recognizing that new opportunities lie at the
intersection of two or more industries. Capitalizing on these opportunities can be challenging, however, as firms have
to learn about new markets and competitors as well as how to achieve maximum synergy across the different parts of
their business.

How business practices are changing:

The changes in technology and economy are eliciting a new set of beliefs and practices on the part of business firms.
Let’s look at the major business beliefs in the old economy and how these beliefs are shifting.

Old Economy New Economy

Organize by product units
Focus on profitable transactions
Look primarily at financial scorecard
Focus on shareholders
Marketing does the marketing
Build brands through advertising
Focus on customer acquisition
No customer satisfaction measurement
Over promise, under deliver
Organize by customer segments
Focus on customer lifetime value
Look also at marketing scorecard
Focus on stakeholders
Everyone does the marketing
Build brands through behavior
Focus on customer retention and growth
Measure customer satisfaction and retention
rate
Under promise, over deliver

FROM ORGANIZING BY PRODUCT UNITS TO ORGANIZING BY CONSUMER SEGMENTS A Company making

two or more products normally assigns product managers or product divisions to manage them. GE’s Appliance
division would assign different people or business units to manage their washing machines, dryers, refrigerators, and
stoves. This makes sense, but it also makes sense to add marketing groups that address the needs of different customer
groups, such as households and building contractors, who buy differently. This would mean a switch from being
product-centered to being customer-segmented centered.
FROM FOCUSING ON PROFITABLE TRANSATIONS TO FOCUSING ON CUSTOMER LIFETIME VALUE
Companies normally focus on individual transactions with the aim of making a profit on each transaction. New
economy companies add a focus on estimating individual customer lifetime value and designing their market offerings
and prices to make a profit over the customer’s lifetime. The company will sometimes under price to gain new
customers and will be generous in its pricing and services to existing customers with an eye toward retaining them for
the long run.
FROM FOCUSING ON JUST THE FINANCIAL SCORECARD TO FOCUSING ALSO ON THE MARKETING
SCORECARD most senior managers will judge the company’s performance by financial results as reflected on the
profit and loss statement and the balance sheet. Top management in new economy companies will also examine the
marketing scorecard to interpret what is happening to market share (not just sales revenue) customer loss rate,
customer satisfaction, product quality relative to competitors, and other measures. They recognize that changes in
marketing indicators predict changes in financial results.
FROM FOCUSING ON SHAREHOLDERS TO FOCUSING ON STAKEHOLDERS Top management sees its primary
mission as making profits for shareholders. The costs of working with other stakeholders, such as employees,
suppliers, and distributors, are kept under tight rein. They treat business as a zero-sum game, where by paying the least
to employees, suppliers, and distributors, the company will be left with the most profit.
Top management in new economy companies respects the importance of creating co prosperity among all the business
partners and customers. These managers carefully define their stakeholders and develop policies and strategies to
balance the returns to all the key stakeholders. They believe business success depends on high-level performance by
employees and business partners.

FROM MARKETING DOES THE MARKETING TO EVERYONE DOES THE MARKETING

Companies generally establish a marketing department to be responsible for creating and delivering customer value.
Unfortunately, this leads other departments in the company to feel less responsible for company performance vis-à-vis
customers. But as the late David Packard of Hewlett-Packard observed, “Marketing is far too important to leave the
marketing department.” Every employee has an impact on the customer and must see the customer as the source of the
company’s prosperity.

FROM BUILDING BRANDS THROUGH ADVERTISING TO BUILDING BRANDS THROUGH PERFORMANCE

Relying on heavy advertising to build brand knowledge and performance in the target prublic’s mind certainly worked
well in the old economy. But brands, ultimately, are built by the customer’s experience with the brand and by word-of-
mouth. Companies are recognizing that a whole set of tools can help build brands, including sponsorships, event
management, public relations, and charitable gifts.

FROM FOCUSING ON CUSTOMER ACQUISATION TO FOCUSING ON CUSTOMER RETENITON

Most companies seek growth reward salespeople handsomely for finding new customers. As a consequence,
salespeople spend less time ensuring the satisfaction of existing customers, with the result that some current customers
defect.
New economy companies place much more emphasis on customer retention. Attracting a new customer may cost five
times as much as doing a good job to retain existing customer.

FROM NO SUSTOMER SATISFACTION MEASUREMENT TO IN-DEPTH CUSTOMER SATISFATION

MEASUREMENT

Many companies fail to systematically measure and track customer satisfaction and the factors shaping it. Instead they
rely on anecdotal information that is not reliable. An increasing number of companies are making customer satisfaction
a major priority. For example, IBM systematically measures how satisfied customers are with each IBM salesperson
they encounter, and makes this a factor in each salesperson’s compensation.

FROM OVER-PROMISE, UNDER-DELIVER TO UNDER-PROMISE, OVER-DILIVER

To get the order, salespeople frequently over-promise on quality or delivery, and worry later about the repercussions.
This is true of ads that exaggerate the performance of company products. New economy companies recognize that
customer satisfaction is a function of the match between customer expectations and company performance. These
companies want their messages and promises to be accurate. Some would even prefer that their salespeople under-
promise and promises to be accurate. Some would even prefer that their salesperson’s under-promise and over-deliver,
as a way to create customer delight.

THE NEW HYBRID

The fact is that today’s economy and most companies are a hybrid of the old economy and the new economy.
Companies need to retain skills and competencies that have worked in the past, but they will also need to add new
understandings and competencies if they hope to grow and proper. Today’s marketplace is made up of traditional
consumers (who do not buy online), cyber consumers (who mostly buy online), hybrid consumers (who do both).
Most consumers are hybrid: they shop in grocery stores but occasionally order from peapod; they buy books in Barnes
& Noble bookstores and sometimes order books from bn.com. People still like to squeeze the tomatoes, touch the
fabric, smell the perfume, and interact with salespeople. Consumers are motivated by other needs than only shopping
efficiently. Most companies will need a presence both offline and online to cater to these hybrid consumers. The task
today is for companies to rethink and revise their overall company strategy and within that, their marketing strategy.
We will even argue that marketing should play the lead role in shaping company strategy.
Companies are adjusting their marketing practices to meet new conditions. We will examine two newer practices that
companies and their marketers are getting involved in: E-business and customer relationship management.

HOW MARKETING PRACTICES ARE CHANGING: E-BUSINESS

E-business describes the use of electronic means and platforms to conduct a company’s business. The advent of the
internet has greatly increased the ability of companies to conduct their business faster, more accurately, over a wider
range of time and space, at reduced cost, and with the ability to customize and personalize customer offerings.
Countless companies have setup websites to inform and promote their products and services. They have created
Intranet to facilitate employees communicating with one another and to facilitate downloading and uploading
information to and from the company’s computers. Companies have also setup Extranets with major suppliers and
distributors to facilitate information exchange, orders, transactions, and payments. Bill Gates of Microsoft claims that
Microsoft is almost entirely run electronically; there is hardly any paper following through the company because
everything is on the computer screen.
e-commerce is more specific is than e-business; it means that in addition to proving information to visitors, about the
company its history, policies, products and job opportunities, the company or site offers to transact or facilitate the
selling of the product and services online. Most company sites are still just proving information not doing e-commerce
Amzaon.com, CDnow.com, Etoys.com, E-steel and E-plastics net are example of e-commerce sites.
E-commerce has given rise in turn to e purchasing and e-marketing. E-purchasing Means Company decides to
purchase goods, services and information from various online suppliers. Smart e purchasing has already saved
companies millions of dollars. E marketing describes company efforts to inform, communicate, promote, and sale its
products and services over the net. The e-term is also used in terms such as e-finance, e learning, and e-service. But as
someone observe, the e will eventually be dropped when most business practice is online.
E-business and e-commerce take place over four major internet domains:B2C (Business to consumer), B2B (Business
to Business), C2C (Consumer to Consumer), and C2B (consumer to businesses). (we will omit government relations
like G2C, G2B, B2G and C2G).

INTERNET DOMAINS: B2C (BUSINESS TO CONSUMER)

The popular press has paid the most attention to consumer websites. In 2000, more than 106 million Americans went
online, with 80% looking for information, 73% researching a service or product before buying it, 68% looking for
travel information, and 65% looking for information on movies, books, and leisure activities.
The most frequent online consumer purchases (in terms of the % of online buyers saying they have purchased in the
category) have been books (58%), music 50%, software 44%, air ticket 29%, PC peripherals 28%, clothing 26%,
videos 24%, hotel reservation 20%, toys 20% , flowers 17%, and consumer electronics 12%. The internet is more
useful for products and services when the shopper keeps greater ordering convenience (for example, books and music)
and lower cost (for example stock trading or news reading). It is also useful when buyer need information about
product features and price (for example automobiles or computer). Individuals are also using the internet to search for
search to other to meet or date on such sites as match.com, americansingles.com, or virtuallydating.com. Companies
must setup and operate their e-commerce websites carefully, as the “Marketing menu: succeeding with electronic
commerce” shows.
The internets less useful for products that must be touched or examined in advance. But even this has exceptions.
People can order furniture from EthanAllen.com, major appliances from sears.com, and expensive computers from
Dell or Gateway without trying with advance. People order flowers, wine, and even home mortgages online.

For example: askari.com is one of the leading commercial band on our society and they have set up website for
offering online services to their clients in this way this have made it easy to conduct their business easily and
efficiently with their clients.

Calyx and Corolla (C&C) C&C is a direct floral retailer started by a visionary entrepreneur, Ruth, M. Owades.
Customers can order fresh flower and bouquets from a four-color catalog by phoning 1-800-877-0998 or by placing an
order on the website at www.calyxandcorolla.com, which also shows floral bouquets, plants, preserved designs, and
corporate gifts. The fresh flower order goes immediately to one of 25 growers in the C&C network, who picks and
packages the flower and ships them via FedEx. The flowers arrive fresher and last about 10 days longer than flower
ordered from stores-best retailers. Owades credits her success to a sophisticated system and her strong alliances with
FedEx and the growers.

Wine.com wine.com is the brainchild of master sommelier peter Gran off and Silicon Valley engineer Robert Olson.
The behind this site is to make it easy to locate and purchase hard-to-find. Wine, food and gifts from artisan producer.
Wine.com features wines from California and European wineries, and food and gifts item. It makes the often
intimidating topic of wine congenial for those who might be afraid to ask what “Carbonic maceration” means.
Wine.com hosts five monthly wine clubs. It features Q&A sections on the characteristics of wine, serving and storing
wine, and wine and food paring suggestions. There is also a “wine basics” page with sections on wine types, wineries,
appellations, etc.

Homeowners.com prospective home buyers can research home mortgage rates and interest rate trends, use financial
tools for analyze loans, and sign up for Red watch, and e-mail service that keeps them inform of trends in loan rates.
They can apply online for a home mortgage from variety of home mortgage providers and obtain responses within one
business day. In addition, they can connect with realtors in specific locations and neighborhoods.

Online consumers tend to be younger, more affluent and better educated than the general population. But as more
people find their way on to the Internet, the cyber space population is becoming more mainstream and diverse.
Younger users are more likely to use the Internet for entertainment and socializing. Yet 45% of users are 40 years of
age or older, and use the Internet for investment and more serious matter.
The strange process in the edge of conformation as become customer-initiated and customer-control. Marketers and
their representative must wait until customers invite them to participate in the exchange. Even after marketers enter the
exchange process, customers define the rules of engagement, and insulate themselves with the help of agents.
Customers define what information they need, what offerings they are interested in, what prices are willing to pay. (To
better understand the new power of consumers opened up by the Internet, see the “marketing inside: ride the clue train
manifesto.”)

INTERNET DOMAINS: B2B (BUSINESS TO BUSINESS)

Although the popular press has given the most attention to business-to-consumer (B2C) websites, even more activity is
being conducted on business to business (B2B) sites. The B2B sites are changing the supplier-consumer relationship in
profound ways:
Forester and Gartner, major research firms on online commerce, estimate that B2B commerce is 10 to 15 times greater
than B2C commerce. Gartner estimates that by 2005, more than 500,000 enterprises with participate in e-market as
buyers, sellers, or both. These firms are using auction sites, exports exchanges, and online product catalog, and other
online resources to obtain better prices. Many major enterprises, including chevron, ford motor company, GE and
Merck, have invested millions in web procurement systems the result: invoices that use to cost $100 to process now
cost as little as 20$.
GE is now requiring all its partners to join its web procurement network-the trading process network (TPN) - in an
initiative that could save GE as much as 200$ million per year by 2003.
Company purchasing agents initially favored shifting their commodity purchases to digital market places that bring
together many buyer and seller in one place. However, they have been reluctant to finalize online transactions with
companies they never heard of,, do not know well, or have not done business with in the past, they prefer to identify a
promising seller online and then go into offline negotiation rather than place an order online. Most purchasing groups
prefer to set up their own portal with extranet connections to favored and trusted suppliers.
In several industries, companies have formed buying alliances to secure even deeper volume discounts from suppliers.
Gm, Ford, and Daimler Chrysler formed Covisint, and they believe they can save as much as 1200$ a car by
combining their purchases.
Coca-Cola, Sara Lee, Kraft, and several other consumer packaged goods companies formed Transora to affect cost
savings in raw material and logistical procurement, much work has to be done before these buying alliances begin to
work, but when they do, sellers will be under even more price pressure.
INTERNET DOMAIN: C2C (CONSUMER TO CONSUMER)

There is considerable consumer-to-consumer communication on the web on a whole range of subject. AOL boosts
some 14,000 chat rooms coverings such topics as healthy eating, caring for your bonsai tree, in exchanging views
about the latest soap opera happenings, AOL recently introduce “buddy list, “ which alerts members when friends are
online, allowing them to exchange instant messages. Parent soup.com is an online community of more than 200,000
parents who spend time online gathering information, chatting with other parents and linking to related sites. On
agriculture.com, farmers can find commodity prices, recent farm news and chat rooms of all types. The site is
attracting as many as five million hits per month. The web whose hosts many bulletin boards where people can post
messages? The most prominent C2C channel is e-mail, which functions digital post office.
C2C means that online visitors increasingly create product information, not just consume it. They join internet interest
groups to share information, so that “word of web” is joining “word-of-mouth” as an important influence. Words about
good companies travel fast; and words about bad companies travel even faster.

INTERNET DOMAIN: C2B (CONSUMER TO BUSINESS)

Consumers are also finding it easier to communicate with companies. Company often encourages communication by
inviting prospects and consumers to send in questions, suggestions, and even complaints via email. Some sites even
include call-I button-the consumer clicks on it and his or her phone rings with a customer representative ready to
answer the question. Customer’s service representative can in principal respond quickly to these messages. Yet many
online merchants are guilty of considerably slow responses to consumer mail. Smart online marketers will answer
quickly, by sending out news letters, special product or promotion offers based on purchase history, remainders of
service requirement or warranty renewals, or announcement of special events.

HOW MARKETING PRACTICES ARE CHANGING:

Setting up web sites
Clearly all companies need to move into-e-marketing and e purchasing. In deciding to set up and operate their own
Web sites, they face many questions, such as those listed in Table 2.2.
Many of these questions will be answered throughout the book. Here we address only three: Designing an
attractive Web site: placing ads and promotion online; and building a revenue and profit model.
Designing an attractive website
A key challenge is designing a site that is attractive on first viewing and interesting enough to encourage repeat visits.
Early text-based Web sites have increasingly been replaced by sophisticated sites that provide text, sound, and
animation (see www.gap.com or www.1800flowers.com ).
Ryport and jaworski have proposed that effective Web sites feature seven design elements that they call the
7Cs;
• Context: Layout and design.
• Content: Text, pictures. Sound and video the site contains.
• Community: How the site enables user-to-user communication.
• Customization: site, ability to tailor itself to different users or to allow users to personalize the site.
• Communication: How the site enables site-to=user, user-to-site, or two-way communication.
• Connection: Degree that the site is linked other sites.
• Commerce: site’s capabilities to enable commercial transactions.
• To encourage repeat visits, companies need to pay attention to context and content factors.
Context factors
Visitor will judge a site’s performance on its case-of-use and its physical attractiveness. Ease-of-breaks down
into three attributes: (1) the web site downloads quickly, (2) the first page is easy to understanding and (3) the visitor
finds it easy to navigate to other pages that open quickly. The site’s physical attractiveness is determined by the
following factors: (1) the individual pages are clean looking and not overly crammed with content, (2) the type faces
and font size are very readable, and (3) the site makes good use of color (and sound).
CONTENT FACTORS:
Context factors facilitate repeat visits, but they do not ensure that this happens. Returning to a site depends on
content. The content must be interesting, useful, and continuously changing. Certain types of content function well to
attract first-time visitors and to bring them back again : (1) deep information with links to related sites, (2) changing
news of interest, (3) changing free offers to visitors, (4) contests and sweepstakes, (5) humor and jokes and (6) games,
GETTING FEEDBACK
From time to time, a company needs to reassess its site's attractiveness an
Usefulness. One way to do this is to ask site design experts. But the most
Important source of feedback is users who can be asked what they like and
Dislike about the site and for suggestions for improvement.
Here and examples of well-designed company Web sites:
PLACING ADS AND PROMOTION ONLINE:
The internet will not become a major Advertising medium like television, radio and print media. Internet users
generally do not welcome advertising. Yet advertising does appear on the internet. Company has to decide which
forms will be most cost-effective in achieving their advertising objectives.
Banner ads, small boxes containing text and perhaps a picture, are that most extensively used internet
advertising tool. Companies pay to place their banner ads on relevant Web sites. The larger the
Audience reached, the more the placement will cost. Popular portals such as Yahoo! And AOL are able to charge large
fees because they have huge audiences. But the fees may be coming down. Some banners on Web sites are not paid for
but instead are accepted on a barter basis.
In the early days of the internet, viewers probably clicked on 2 to 3 percent of the banner ads they saw. More
recently they are clicking on less than 1/2 of 1 percent of banner ads. Companies pacing banner ads would be wise to
pay not simply for banner placements, nor even only for click-thoroughs, but instead only for sales resulting from the
click-throughs. Yet those offering sites for banner ads are not likely to accept this riskier type of pricing. In the
meantime, advertisers are pressing online sites to accept larger ads than banners if they want more payment, but the
sites are uncertain as to how their viewers will react.
Many companies get their name on the internet by sponsoring special content on Web sites that carry news, financial
information, and so on. Sponsorships are best placed in well-targeted sites where they can offer relevant information or
service. The sponsor pays for showing the content and in turn receives acknowledgment as the sponsor of that
particular service on the Web site
A microsite is a limited area on the web managed and paid for by an external advertiser /company. Microsites
are particularly relevant for companies selling low-interest products such as insurance. People rarely visit an insurance
company’s Web site. However, the insurance company can create a microsite on use l-car sites, offering advice for
buyers of used cars and at the same time offering a good insurance deal.
Interstitials are advertisements that pop-up between changes on a Web site. At the website www.msnbc.com ,
advertising can be seen if viewers go to the sports page. At www.blender.com , users can download a special
Blenderbrowser to view full-screen advertisements in the form of 10-second interstitials with sound .Ads for Johnson
& Johnson’s Tylenol headache reliever popup on brokers’ Web sites whenever the stock market falls by 100 points or
more. Browser ads pay a viewer to watch them. For example Alladvantage.com downloads a view bar, which displays
ads targeted to the users... Viewers earn $20 to $1 per hours in return.
Companies can set up alliances and affiliate program. When one Internet Company works with another one,
they end up advertising each other. AOL has created many successful alliances with other companies. Amazon has
more than 350,000 affiliates that post Amazon banners on their Web sites. Companies can also undertake guerrilla
marketing actions to publicize the site and generate word-of-mouth. When Yahoo! Started its Denmark site it
distributed apples in the busiest train station in Denmark with the massage that in the next hours a trip to new York
could be won on the Yahoo! Site; it also managed to get this mentioned in Danish newspapers. Companies can offer to
push content and ads to targeted audiences who agree to receive them. Info gate (www.infogate.com) and I fusion
(www.ifusion.com) automatically download customized information and ads to recipients’ PCs. The advantage is
that the targeted content and ads reach users who are interested in the product or product category.
Web advertising is showing double-digit growth. Costs are reasonable compared with those of other
advertising media .For example. Web advertising of ESPN.com (www.espn.com) ,which attracts more than
500,000 Web surfers and 20 million hits per week, costs about $300,000 per year. Yahoo! Employs 100 salespeople
who demonstrate how online ads can reach people with certain interests or who live in specific zip codes.

How marketing practices are changing:

Customer Relationship marketing:

The origins of relationship marketing observes: "What is surprising is that researchers and businessmen have
concentrated far more on how to attract customers to products and services than on how to retain customers". The
initial research was done by Leonard Berry and Jag Sheth, both of whom were early users of the term "Relationship
Marketing", and by marketing theorist Theodore Levitt at Harvard who broadened the scope of marketing beyond
individual transactions.

In practice, relationship marketing originated in industrial and B2B markets where long-term contracts have been quite
common for many years. Academics like Barbara Bund Jackson at Harvard re-examined these industrial marketing
practices and applied them to marketing proper.
According to Leonard Berry, relationship marketing can be applied: when there are alternatives to choose from; when
the customer makes the selection decision; and when there is an ongoing and periodic desire for the product or service.

Fornell and Wernerfet used the term "defensive marketing" to describe attempts to reduce customer turnover and
increase customer loyalty. This customer-retention approach was contrasted with "offensive marketing" which
involved obtaining new customers and increasing customers' purchase frequency. Defensive marketing focused on
reducing or managing the dissatisfaction of your customers, while offensive marketing focused on "liberating"
dissatisfied customers from your competition and generating new customers. There are two components to defensive
marketing: increasing customer satisfaction and increasing switching barriers.

Traditional marketing originated in the 1960s and 1970s as companies found it more difficult to sell consumer
products. Its consumer market origins molded traditional marketing into a system suitable for selling relatively low-
value products to masses of customers. Over the decades, attempts have been made to broaden the scope of marketing,
relationship marketing being one of these attempts. Marketing has been greatly enriched by these contributions.

The practice of relationship marketing has been greatly facilitated by several generations of customer relationship
management software that allow tracking and analyzing of each customer's preferences, activities, tastes, likes,
dislikes, and complaints. This is a powerful tool in any company's marketing strategy. For example, an automobile
manufacturer maintaining a database of when and how repeat customers buy their products, the options they choose,
the way they finance the purchase etc., is in a powerful position to custom target sales material. In return, the customer
benefits from the company tracking service schedules and communicating directly on issues like product recalls.

In addition to e-marketing, companies are becoming more skillful in customer relationship marketing and database
marketing. Customer relationship marketing (CRM) enables companies to provide excellent real time customer service
by developing a relationship with each valued customer through the effective use of individual account information.
Based on what they know about each customer, companies can customize market offerings, services, programs,
messages, and media.

Customer relationship marketing holds that a major driver of company profitability is the aggregate value of the
company’s customer base.

For example: Analysis of Customer Feedback methods - UFONE vs. MBL vs. Union Bank

Companies in Pakistan are beginning to recognize the strategic importance of curbing customer churn. As a
result, some of the leading companies are implementing interesting and new ways of getting Customer
Feedback to get some data on customer experiences. While this discussion should generally be a market
research conducted over
hundreds of companies, let’s analyze three approaches. Disclaimer: This may not be the apples to apples
comparison you expect, because I am not counting traditional approaches such as help lines, ticketing systems,
etc. What I am analyzing are “innovative” new ways of getting customer insight that the three firms are using.

Winning companies are more productive in acquiring, keeping, and growing customers. These companies
improve the value of their base by excelling at the following customer strategies:

UFone’s Approach to Customer Feedback

You walk into their store to pay the bill or get something done — that transaction is entered into their POS /
CRM / Billing / ERP system.

One day later Ufone sends you an SMS hoping your experience was well, and asking a simple question: “Was
your experience satisfactory? Send reply ‘yes’ or ‘no’ “.

Simple, and to the point.

Ufone Analysis:

UFone’s approach is good in that it is a dead-simple feedback form — a

Yes / No vote is easy enough that people might reply, and is also
enough to form a very simplistic model of using that feedback to
improve operations.

The costs of this approach, however, is that Ufone will not know why people
are not satisfied, and for this they will have to work closely with the
Line or Business Center managers as well as sort through reports of
customer service staff. Even then, they will skewed data — in today’s
customer experience world, skewed data can be hazardous to a company’s
health.

The other major issue with UFone’s approach is that it is an

interruption based approach. If I get an SMS at an odd time, I wouldn’t
care if the SMS says “thank you for visiting our store”, it interrupted
me and hence has a chance to put me off.

Especially because UFone keeps sending an SMS every day until you give
up and reply! (It does that to me anyway — maybe they wanted me to
write about them).

Micronet Broadband’s Approach to Customer Feedback

MBL will send you a small feedback form with your next bill (in case you receive a bill) asking for feedback in
return for some MB of free data.

The feedback form has three to four fields that you fill out

MBL Analysis

On the other hand, MBL’s approach is a “permission” based approach. It bothers me only when I am choosing
to be bothered by MBL anyway, and then presents an extra option to provide feedback.

The extra Data incentive might be great for some people, but then again
the amount of data they offer doesn’t mean much in the broadband world
anyway (maybe a day’s worth?).

The problem with this approach is that the total cost to a consumer for actually providing that feedback is just
too much. Are they really asking a person with broadband internet (their corporate customers) to pick up a pen
and write and then pack up the letter with the bill and send it, and then follow up with them regarding the extra
data gift?
Too much work.

In addition to this, I dont think a form with 3-4 fields, especially with subjective fields, is an effective way of
getting feedback. The data will be too skewed, and information entry and processing on MBL’s ERP system will
be too costly for MBL.

In comparion, UFONE’s one-question survey still gives UFONE a standardized way of receiving feedback.

Union Bank’s Approach to Customer Feedback

You keep doing what you’re doing. They do nothing.

Then, one day, their branch managers get very detailed reports of Customer Experiences, including even the
names of the employees who caused the problem.

Analysis of Union Bank’s Approach

For a leading international bank like Standard Chartered to decide to outright acquire Union Bank for more
than $600MM, Union must be doing something better than them.

That something is clearly customer service. If you are a high-priority banking customer, walking into a bank
takes up time you wont have. The least you want is to get your job done in the shortest amount of time.

Just a few extra “good morning sir, oh let me take care of that right away” and “sir, sit right there and leave it
to us” makes a mile of a difference, and honestly, Standard Chartered (atleast in ISB) still has a lot to learn
from Union in this area.

How does Union Bank get feedback? They invest heavily in Mystery Shoppers — professional feedback
consultants from market research firms that pretend to be customers, walk into banks and secretly document
everything about the bank.

Since this report is generated by an independent third party, its a brutal no-hands barred report on issues with
the existing setup, which goes down to actual names and designations of the employees and recordings and
tapes of behavior.

Since Union is paying these mystery shoppers to surprise them, the economic costs and gaps and incentive
structure is also broken down and solved — they are professionally and contractually bound to give feedback.

I’m sure UFONE and MBL both also employ Mystery shoppers, and I’m sure both also listen to samples of
conversations in their call centers, but it is the sweet spot of investment and report structure that Union has
focused on achieving that makes them the most effective.

• Increasing the longevity of the customer relationship

• Enhancing the growth potential of each customer through “share-of-wallet”, cross-selling and up selling.
• Making low-profit customers more profitable or terminating them.
• Focusing disproportionate effort on high value customers.

Some of the groundwork for customer relationship marketing was laid by Don Peppers and Martha Rogers in their
book, the one-to-one future. Peppers and Rogers use a four-step framework for one-to-one marketing:

• Identify your prospects and customers. Do not go after everyone.

• Differentiate customers in terms of (1)their needs and (2) their value to your company. As for customer value,
companies should spend proportionately more effort on their most valuable customers (MVCs). Customer
value is estimated as the net present value of all future profits coming from purchases, margin levels, and
referrals, less customer specific servicing costs.
• Interact with individual customers to improve your learning about their individual needs and to build stronger
relationships.
• Customize products, services, and messages to each customer.

Customer databases and database marketing:

The important point is to know the customer. And in order to know the customer, the company must collect
information and store it in a customer database and do database marketing: A customer database is an organized
collection of comprehensive information about individual or prospects that is current, accessible, and actionable or
such marketing purposes as lead generation, lead qualification, sale of a product or a service, or maintenance of
customer relationships. Database marketing is the process of maintaining, building, and using customer databases and
other databases (product, suppliers, resellers) for the purpose of contacting, transacting, and building relationships.

Many companies confuse a customer mailing list with a customer database. A customer mailing list is simply a set of
names, addresses and telephone numbers. A customer database contains much more information. Companies
accumulate this information through customer transactions, registration information, telephone queries, cookie
information, and information from every contact with a customer (a touch point).

A customer database ideally would contain the customer’s past purchases, demographics (age, income, family
members, birthdays, psychographics (activities, interests and opinions), media graphics (preferred media), and other
useful information. For example, the catalog company Fingerhut possesses some 1400 pieces of information about
each of the 30 million households in its massive customer database. And the Royal Bank of Canada on its 9 million
customers and is able to model the lifetime value of individual customers, their potential interest in different offerings,
and their vulnerability to attrition.

A business database ideally would contain past purchases of business customers; past volumes, prices and profits;
buyer team member names (and their ages, birthdays, hobbies, and favorite foods); status of current contracts; an
estimate of the supplier’s share of the customer’s business; competitive suppliers; assessment of competitive strengths
and weaknesses in selling and servicing the account; and relevant buying practices, patterns, and policies. For
example, a Latin American unit of the Swiss pharmaceutical firm.

Novartis keeps data on 100,000 of Argentina’s farmers, knows their crop production chemical purchases, groups them
by value, and treats each group differently.

Data warehouses and data mining:

Savvy companies are capturing information every time a customer comes into contact comes into contact with any of
its departments. The touch points include a customer purchase, a customer-requested service call, an online query, and
analyze the data. Inferences can be drawn about the individual customer’s needs and responses. Telemarketers can
responds to customer inquiries based on a total picture of the customer relationship.

Through data mining, marketing statisticians can extract useful information about individuals, trends and segments
from the mass of data. Data mining involves the use of sophisticated statistical and mathematical techniques such as
cluster analysis, automatic interaction detection, predictive modeling and neural networking. A company that wants to
learn the most from its database needs to engage the services of a person or company skilled in data mining.

Using the database:

In general companies can use databases in five ways:

1. To identify prospects- Many companies generate sales leads by advertising their product or service. The ads
generally contain a response feature, such as a business reply card or toll-free phone number. The database is
built from these responses. The company sorts through the database to identify the best prospects, then
contacts them by mail, phone, or personal call in an attempt to convert them into customers.
2. To decide which customers should receive a particular offer- Companies are interested in selling, up-selling
and cross-selling their products and services. Companies set up criteria describing the ideal target customer
for a particular offer. Then they search their customer databases for those who most closely resemble the ideal
type.

By noting response rates, a company can improve its targeting precision over time. Following a sale, it can set up an
automatic sequence of activities: One week later, send a thank you note; five weeks later, send a new offer; ten weeks
later (if customer has not responded), phone the customer and offer a special discount.

3. To deepen customer loyalty- Companies can build interest and enthusiasm by remembering customer
preferences; by selling appropriate gifts, discount coupons, and interesting reading material.
4. To reactivate customer purchases- companies can install automatic mailing programs (automatic marketing)
that send out birthday or anniversary cards, Christmas shopping reminders, or off-season promotions. The
database can help the company make attractive or timely offers.
 5. To avoid serious customer mistakes- A major bank confessed to a number of mistakes that it had made by not
using its customer database well. In one case, the bank charged one customer a penalty for late payment on
his mortgage, failing to note that he headed a company that was a major depositor in this bank. He quit the
bank. In second case, two different staff members of the bank phoned the same mortgage customer offering a
home equity loan at different prices. Neither knew that the other had made the call. In third case, a bank gave
a premium customer only standard service in another country.

The downside of database marketing:

Having described the good news about database marketing, we also have to describe the bad news. Three problems can
deter a firm from effectively using CRM. The first is that the building and maintaining a customer database requires a
large investment in computer hardware, database software, analytical programs, communication links, and skilled
personnel. It is difficult to collect right data, especially to capture all occasions of company interaction with individual
customer. Building a customer database would not be worthwhile in the following cases:

• Where the product is once in a life time purchase (e.g. a grand piano)
• Where customers show little brand loyalty (e.g. there’s a lots of customer churn)
• Where the unit sale is very small (e.g. a candy bar)
• Where the cost of gathering information is too high.

The second problem is the difficulty of getting everyone in the company to be customer-oriented and to use the
available information. Employees find it far easier to carry on traditional transaction marketing than to practice
customer relationship marketing.

The third problem is that not all customers want a relationship with the company, and they may resent knowing that
the company has collected that much personal information about them. Marketers must be concerned about customer
attitudes toward policy and security. American Express, long regarded as a leader on privacy issues, does not sell
information on specific customer transactions. However, American express found itself the target of consumer outrage
when it announced a partnership with Knowledgebase Marketing, Inc. that would have made data on 175 million
Americans available to any merchant who accepts American Express cards. American Express killed the partnership.
AOL, also targeted by privacy advocates, junked a plan to sell subscriber’s telephone numbers. Online companies
would be smart to explain their privacy policies, and give consumers the right not to have their information stored in a
database.

European countries do not look favorably upon database marketing. The European union just passed a law
handicapping the growth of database marketing in its 15 member countries. Europeans are more protective of their
private information than are U.S. citizens.

It turns our that database marketing is not for everyone. Database marketing is most frequently used by business
marketers and service providers (hotels, banks and airlines) that normally and easily collect a lot of customer data. It is
used less often by packaged-goods retailers and consumer packaged-goods companies, though some companies (Kraft,
Quaker Oats, Ralston Purina, and Nabisco) have built databases for certain brands.

At CAN insurance, five programmers worked for nine months loading five years of claims data into a computer, only
to discover that the data had been miscoded. Even if coded correctly, the data must be updated continuously because
people move, drop out, or change their interests. Deloitte Consulting reported in 1999 that 70 %of firms found little or
no improvement through CRM implementation. The reasons are many: the system was poorly designed, it became too
expensive, users didn’t make much use of it or report much benefit, and collaborations ignored the system. All this
points to the need for each company to determine how much to invest in building and using database marketing to
conduct its customer relationships.

When to use relationship marketing:

Relationship marketing and transactional marketing are not mutually exclusive and there is no need for a conflict
between them. However, one approach may be more suitable in some situations than in others. Transactional
marketing is most appropriate when marketing relatively low value consumer products, when the product is a
commodity, when switching costs are low, when customers prefer single transactions to relationships, and when
customer involvement in production is low. When the reverse of all the above is true, as in typical industrial and
service markets, then relationship marketing can be more appropriate. Most firms should be blending the two
approaches to match their portfolio of products and services. Virtually all products have a service component to them
and this service component has been getting larger in recent decades.
Criticisms of relationship marketing:
Internal marketing and the six markets model has been criticized as not really being marketing at all. At the core of
marketing is the marketing philosophy of first determining what the market wants, then providing it. It is doubtful that
this is what is occurring in influence markets, supplier markets, recruitment markets, or internal markets. What is
occurring is closer to public relations, persuasion, and management. It appears to be marketing because it uses some
marketing techniques, but it would more accurately be described as salesmanship.
Relationship theorists tend to compare themselves to traditional marketing. In doing so they frequently present
traditional marketing in an unfavorable light. For example, Adrian Payne (1991) claims that traditional marketing
concentrates on product features, has minimal interest in customer service, limited customer contact, and quality is
primarily a concern of production. Although there may still be some marketers that think this way, these statements
have not reflected marketing best practices for more than three decades.