Brand building on the Internet

August 26, 2017 | Author: erfan1980 | Category: Brand, Sales, Internet, Strategic Management, Marketing
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S U C C E S S F U L

ON

THE

INTERNET

A DISSERTATION SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF A MASTERS IN BUSINESS ADMINISTRATION (MBA) AT THE

UNIVERSITY OF CAMBRIDGE

ROBIN S. CLELAND SEPTEMBER 2000

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

CONTENTS SUBJECT

CHAPTER 1 1.1 1.2 1.3 1.4

2.9

3.4 3.5 3.6 3.7

6 7 9 9 11

THE NATURE OF BRANDS

Introduction What is a Brand? The Layers of a Brand Product and Service Brands Branding & the Buying Process The Importance of Customer Satisfaction and Loyalty Emotional Loyalty The Concept of Brand Equity 2.8.1 The Value of Brands to Customers 2.8.2 The Value of Brands to Companies Conclusion

CHAPTER 3 3.1 3.2 3.3

INTRODUCTION

Overview Objectives Methodology Structure

CHAPTER 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8

PAGE

BUILDING BRANDS

Introduction Overview of the Brand-Building Process The Value Proposition 3.3.1 Added Value 3.3.2 Distinctive Brand Identity Developing the Framework and Communicating the Value Proposition Building Customer Relationships Characteristics of Successful Brands Conclusion

1

12 13 13 14 15 16 18 19 20 22 22 23

24 25 25 26 27 28 30 31 32 32

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

CHAPTER 4 4.1 4.2 4.3 4.4 4.5 4.6

33

Introduction Overview of the Internet 4.2.1 The Defining Characteristics of the Internet The Growth of the Internet The Internet & e-Commerce The Impact of the Internet on Business Conclusion

CHAPTER 5 5.1 5.2 5.3 5.4 5.5

THE INTERNET

BUILDING BRANDS ON THE INTERNET

34 34 35 35 39 40 43

44

5.6 5.7

Introduction The New Dynamics of Brands The Importance of Customer Loyalty Online Increasing Returns Economics and First-Mover Advantage Viral Marketing 5.5.1 The Case of Hotmail.com The Online Experience & The 7Cs Framework The Interactive Brand-Building Model

45 45 47 48 50 51 52 57

5.8 5.9

Limitations of Brand-Building on the Internet Conclusion

59 60

CHAPTER 6 6.1 6.2

6.3

CASE STUDIES

61

Introduction Case Study: Amazon.com 6.2.1 Company Overview 6.2.2 Value Proposition 6.2.3 Sources of Value - The 7Cs Framework 6.2.4 Brand-Building Strategy 6.2.5 Other Factors that Contribute to their Brand Leadership 6.2.6 Conclusion Case Study: BarnesandNoble.com 6.3.1 Company Overview 6.3.2 Value Proposition 6.3.3 Sources of Value - The 7Cs Framework 6.3.4 Brand-Building Strategy 6.3.5 Conclusion

2

62 62 62 62 64 66 69 70 71 71 72 72 73 75

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

6.4

6.5

6.6

6.7

6.8

Case Study: Boo.com 6.4.1 Company Overview 6.4.2 Value Proposition 6.4.3 Sources of Value - The Failure of Boo.com 6.4.4 Brand-Building Strategy 6.4.5 Conclusion Case Study: CDnow 6.5.1 Company Overview 6.5.2 Value Proposition 6.5.3 Sources of Value - The 7Cs Framework 6.5.4 Brand-Building Strategy 6.5.5 Other Factors that Contribute to their Brand Leadership 6.5.6 Conclusion Case Study: eBay 6.6.1 Company Overview 6.6.2 Value Proposition 6.6.3 Sources of Value - The 7Cs Framework 6.6.4 Brand-Building Strategy 6.6.5 Conclusion Case Study: Gap.com 6.7.1 Company Overview 6.7.2 Value Proposition 6.7.3 Sources of Value - The 7Cs Framework 6.7.4 Brand-Building Strategy - Extensive Integration 6.7.5 Conclusion Case Study: Yahoo! 6.8.1 Company Overview 6.8.2 Value Proposition 6.8.3 Sources of Value - The 7Cs Framework 6.8.4 Brand-Building Strategy 6.8.5 Other Factors That Contribute to their Brand Leadership 6.8.6 Conclusion

CHAPTER 7 7.1 7.2

CONCLUSION

105

Conclusion & Discussion of Key Findings 7.1.1 Key Factors that Contribute to Building a Successful Online Brand Opportunities for Further Research

APPENDICES Appendix A Appendix B

76 76 76 77 78 79 80 80 80 81 83 84 85 86 86 86 87 91 92 93 93 93 94 96 97 98 98 98 99 102 104 104

106 107 110

111

Interbrand's Ranking of the Top 60 Brands The Mckinsey 7S Framework

BIBLIOGRAPHY

112 113

114 3

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

LIST OF FIGURES Figure 1.1 Figure 1.2 Figure 2.1 Figure 2.2 Figure 2.3 Figure 2.4 Figure 2.5 Figure 2.6 Figure 2.7 Figure 2.8 Figure 3.1 Figure 3.2 Figure 3.3 Figure 3.4 Figure 4.1 Figure 4.2 Figure 4.3 Figure 4.4 Figure 4.5 Figure 4.6 Figure 4.7 Figure 5.1 Figure 5.2 Figure 5.3 Figure 5.4 Figure 5.5 Figure 5.6 Figure 5.7 Figure 5.8 Figure 5.9 Figure 6.1 Figure 6.2 Figure 6.3 Figure 6.4 Figure 6.5 Figure 6.6 Figure 6.7 Figure 6.8 Figure 6.9

Years to Reach $100 million in Sales Research Methodology A Brand is More Than a Product or Service Layers of a Brand Five-Stage Model of the Buying Process Steps Between Evaluation of Alternatives and a Purchase Decision The Satisfaction-Loyalty Relationship Creating Emotional Loyalty Brand Progression Brand Equity Brand-Building Mechanism Define the Value Proposition Kapferer's Brand Identity Prism The Innovation-Adoption Model The Three Layers of the Internet Growth in Internet Host Computers and Major Developments Accelerated Rate of New Technology Acceptance The Virtuous Growth Cycle of the Internet What are People Doing Online? World-wide Commerce on the Internet (1998-2003) The Structure of an Online Company The Network Effect The Virtuous Spiral of Online Growth The 7Cs Framework Factors Affecting Web Brand Loyalty The Community Hexagon Customer Access to Information The Interactive Brand-Building Model Website Promotion Methods - Popularity & Effectiveness Categories Suitable for Interactive Marketing Overview of Amazon.com's Website Amazon.com's Associates Programme Overview of BarnesandNoble.com's Website Overview of Boo.com's Website Overview of CDnow's Website Overview of eBay's Website Overview of Gap's Website Overview of Yahoo!'s Website Overview of My Yahoo! 4

7 9 13 14 16 17 18 20 20 21 25 26 29 30 34 36 36 37 38 39 43 48 49 52 53 55 56 57 58 60 64 67 72 77 81 88 94 100 101

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

LIST OF TABLES Table 5.1 Table 6.1 Table 6.2

The Emerging Brand-Building Environment Amazon.com - Timeline and Major Milestones BarnesandNoble.com - Timeline and Major Milestones

46 63 71

Table 6.3 Table 6.4 Table 6.5 Table 6.6 Table 6.7

Boo.com - Timeline and Major Milestones CDnow - Timeline and Major Milestones eBay - Timeline and Major Milestones Gap.com - Timeline and Major Milestones Yahoo! - Timeline and Major Milestones

76 80 87 93 99

5

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

CHAPTER 1

INTRODUCTION

6

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

1.1

OVERVIEW

Over the past few years, there has been an explosion in the online world - an explosion that is also a harbinger of how business will operate in the future. Supply chains are being rethought, products and services reconfigured, and business models revamped. As such, the Internet is having a profound impact on the way business is being conducted in ways that are often disruptive to traditional methods1. This is creating new challenges and opportunities. The Internet provides the opportunity for companies to reach a wider audience and create compelling value propositions never before possible (e.g. Amazon.com's range of 4.5 million book titles), while providing new tools for promotion, interaction and relationship building. It is empowering customers with more options and more information to make informed decisions. The Internet also represents a fundamental shift in how buyers and sellers interact, as they face each other through an electronic connection, and its interactivity provides the opportunity for brands to establish a dialogue with customers in a one-to-one setting. As such, the Internet is changing fundamentals about customers, relationships, service and brands, and is triggering the need for new brand-building strategies and tools. In the midst of this, aggressive Internet start-ups have emerged, creating strong brands that are putting established brands at risk. Internet companies such as Yahoo!, Amazon.com, America Online (AOL) and eBay have been able to build powerful brands in a few years, whereas it has taken decades for traditional companies to achieve the client base, customer affiliation and level of sales, that these Internet start-ups have achieved. Figure 1.1 shows the number of years it has taken some Internet brands to reach sales of $100 million. FIGURE 1.1 - YEARS TO REACH $100 MILLION IN SALES 6

5.1

5

3.2

4

3.9 2.9

3.5

3

2.0

2

1.7

1

0

CDnow DATE OF INCEPTION 1

FEBRUARY 1994

Onsale.com1 Amazon.com JULY 1994

JULY 1994

Cyberian Outpost

eBay

MARCH 1995

SEPTEMBER 1995

Barnesand Priceline.com noble.com MARCH 1997

JULY 1997

Since merged with Egghead.com

Source: Securities and Exchange Commission Filings; McKinsey Analysis (www.mckinseyquarterly.com)

7

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

As a result, harnessing the reach and interactivity of the Internet to build and maintain brands has become extremely important. For pure online players, who are essentially intangible, brands are even more critical as customers have little to go on other than a recognised brand. Given the tremendous clutter in today's e-commerce marketplace, and the high cost of acquiring online customers2, the most successful sites will be those that can attract customers and build brand loyalty and enthusiasm, that extends the brand-customer relationship beyond a single transaction. A Business Week / Harris poll, found that 57% of Internet users go to the same sites over and over again, rather than drifting from site to site3. Therefore, building awareness, attracting traffic or 'eyeballs', turning browsers into buyers, and turning first-time buyers into loyal repeat customers has become the Holy Grail of online marketing strategies. However, as the need to build brand loyalty online is reaching a peak, there is a growing recognition that traditional methods are no longer suited to this new interactive environment.

As such, companies lack a coherent framework and concrete

methods to build an online brand. In light of this, this dissertation seeks to explore how companies should go about building a successful Internet brand and to identify the critical factors that must be considered.

1 2 3

Christensen, C., & Overdorf, M., 'Meeting the Challenge of Disruptive Change', Harvard Business Review, March - April 2000, Volume 78 Issue 2, pp. 66-76 Hoffman, D. L. and Novak, T. P., 'How to Acquire Customers on the Web', Harvard Business Review, May-June 2000 Hof, R., Browder, S., & Elstrom, P., 'Internet Communities - Forget Surfers. A New Class of Netizen is Settling Right In' Business Week, May 5, 1997, p.66

8

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

1.2

OBJECTIVES

The objectives of this dissertation are as follows: •

To gain an understanding of the role of brands and how they have traditionally been built. A review and analysis of leading academic thinking will be used to explore these issues.



To explore how the Internet is changing the brand-building environment, and to identify new sources of value, tools and strategies to build brands on the Internet. Academic literature and an analysis of the impacts of the Internet will be used to investigate these factors, supported by secondary data related to aspects of online business from accredited and published sources.



To identify the key factors and characteristics that contribute to the development of successful Internet brands. This is based on the outcome of the primary research (in-depth case studies), with reference to the theoretical themes that emerge from the literature review and in terms of the practical implications for companies.

1.3

METHODOLOGY

The methodology used in this dissertation is illustrated in Figure 1.2. FIGURE 1.2 - RESEARCH METHODOLOGY ACADEMIC RESEARCH

SECONDARY DATA

HYPOTHESIS

CASE STUDIES

The 7Cs Framework & The Interactive Brand-Building Process

Primary Data

9

CONCLUSION

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Academic Research: Given that the Internet is such a new area, there is more work in popular rather than academic literature.

Consequently, the literature review draws on leading

academic thinking in more established areas such as brand management, relationship management, marketing, strategy and economics. The absence of academic literature on Internet branding posed a major obstacle, however, this also highlights the true value of the dissertation. While there is no attempt, nor desire, to provide an in-depth analysis of the psychological and social dimensions of brands, certain key factors are highlighted in their relevance to the dissertation. Secondary Data: This consists primarily of key facts and survey results quoted by leading consultancy and research firms, and is used to provide insight into some of the factors that contribute to the development of successful brands. Hypothesis (Framework): This is based on the literature review and secondary data. The resulting 7Cs Framework and Interactive Brand-Building Model outline key sources of added value and the tools available for companies to create a high-impact customer experience that is critical in building an online brand. These are further refined using the insight obtained through the case studies. Case Studies: The dissertation is essentially built on the in-depth analysis of the brandbuilding efforts of seven online companies.

The case studies include born-on-the-web

companies that are among the most recognised Internet Brands (Amazon.com, CDnow, eBay and Yahoo!), traditional 'bricks-and-mortar' companies that rose to the challenge of taking their brands to the Internet (Barnesandnoble.com and Gap.com), as well as a recent Internet failure (Boo.com). The combination of cases provides a useful and practical insight into brand-building issues and problems, and factors that contribute to a brand's success. Conclusion: Discusses the key findings and areas for further research.

10

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

1.4

STRUCTURE

The next chapter, Chapter 2, provides an analysis of leading academic literature in relation to branding, and introduces the core concepts that form the backbone of the dissertation. The nature of brands, their purpose and value are discussed. Chapter 3 explores how brands have traditionally been built, highlighting some key factors that have contributed to brand success. Chapter 4 provides an overview of the Internet and its defining characteristics, outlining the key developments that have contributed to the Internet's explosive growth and accelerated adoption.

This chapter sets the context within which online brands must be built, by

outlining the impact of the Internet on the business and competitive environment. Chapter 5 explores new strategies and tools for building brands on the Internet (the 7Cs Framework) and the importance of creating a positive end-to-end customer experience, as well as the interactive approach to attracting customers and building loyalty. The limitations of the Internet in terms of brand-building are also discussed. Chapter 6 examines the brand-building efforts of seven companies. These case studies provide a detailed and practical insight into how leading online brands have actually built their brands. The final chapter, Chapter 7, summarises the key findings, and outlines the opportunities for further research.

11

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

CHAPTER 2

THE NATURE OF BRANDS

12

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

2.1

INTRODUCTION

Brands are made up of many layers and dimensions.

In this chapter, these layers are

unravelled to reveal the nature of brands and their reason for existence. The chapter proceeds to describe the influence of brands on the buying process, and the importance of customer satisfaction and brand loyalty. The concept of brand equity is outlined, explaining the value of brands, both to customers, and to companies. These concepts are central to brands and brand-building, whether online or offline, and they form the backbone of this dissertation. 2.2

WHAT IS A BRAND?

According to Rita Clifton, CEO of Interbrand Newell and Sorrell - a leading specialist brand consultancy firm - a brand is: "a mixture of tangible and intangible attributes, symbolised in a trademark, which, if properly managed, creates influence and generates value4" This definition truly captures the essence of a brand, and highlights the importance of brand management. Branding is about creating 'value', both for customers, and for the company. This value stems from the products and services that companies create and bring to the market, but extends further to encompass added values derived from factors such as the brand-customer relationship, the brand's emotional benefits and its self-expressive benefits - see Figure 2.1. FIGURE 2.1 - A BRAND IS MORE THAN A PRODUCT OR SERVICE BRAND ORGANISATIONAL BRAND ASSOCIATIONS PERSONALITY

COUNTRY OF ORIGIN

USER IMAGERY

PRODUCT OR SERVICE SCOPE ATTRIBUTES QUALITY USES

SELF-EXPRESSIVE BENEFITS

SYMBOLS

EMOTIONAL BENEFITS

BRAND-CUSTOMER RELATIONSHIPS

Source: Adapted from Aaker, D. A, 'Building Strong Brands', (New York: Free Press), 1996, p. 74 4

Clifton, R. & Maughan, E., 'The Future of Brands', (London: Macmillan Press Ltd.), 2000, p. vii

13

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Other common descriptions of a brand include - a 'relationship', a 'reputation', a 'set of expectations', and a 'promise'. It is a company's promise to consistently deliver a specific set of features, benefits, and services to customers. Brands are richly endowed entities. They start life as ideas, making their way into planning and strategy documents, yet ultimately reside as consumer perceptions. For some companies, brands are their most valuable asset. The space a brand occupies inside a customer's head can create a 'mental' patent, which grows out of the cumulative memory and the experiences customers have of products or services. As such, brand-building is about creating value through the provision of a compelling and consistent customer experience that satisfies customers and keeps them coming back. 2.3

THE LAYERS OF A BRAND

Brands are made up of four layers - the core product or service, the basic brand, the augmented brand and the potential brand - Figure 2.2. FIGURE 2.2 - LAYERS OF A BRAND

POTENTIAL BRAND

AUGMENTED BRAND

BASIC BRAND

Name Service

PRODUCT OR SERVICE

Design

Quality Credit & Terms

Features Packaging

Delivery & Installation

Guarantees

Source: Adapted from Levitt, T., 'Marketing success through differentiation - of anything', Harvard Business Review, January-February, 1980, p.86

14

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Product / Service At the most basic level, customers buy products to meet certain functional needs. However, most products and services cannot survive on functionality alone as this is usually matched in time. The most common barrier to competition is building a brand. The Basic Brand The basic brand consists of the "name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors"5. Essentially, this should support the offering's performance and differentiate the brand from those of competitors. The Augmented Brand Successful companies seek a competitive edge through the enlargement of the core product or service, with supplementary products and services (e.g. information, quick delivery) that enhance the customer’s total purchasing and use experience. These products and services add value and make the offering much more difficult for competitors to emulate. The Potential Brand A brand achieves its potential when added values are so great that customers will not willingly accept substitutes, even when the alternatives are substantially cheaper or more readily available (e.g. Coca-Cola, Kodak, Levi's). 2.4

PRODUCT AND SERVICE BRANDS

Product brands are the original brand carriers. They are the historical core of branding because they are the most prevalent, and because they most readily come to mind when consumers are asked to recall brands. Service Brands (intangible) are much less numerous than their product counter parts. Intangible services are also more challenging to "package" and sell to consumers who often have difficulty conceptualising, preferring things they can see and touch. Certain service brands, such as in retailing, actually sell products, but the brand itself is the store, not the products it sells - The Gap stores, Southwest Airlines and Amazon.com are examples. In fact, this is the case with all Internet companies, as they essentially perform the function of a 'virtual' intermediary or 'infomediary' and are intangible. 5

Kotler, P., 'Marketing Management - Analysis, Planning, Implementation, & Control', (Europe: Prentice Hall) 1996, 8th Ed.

15

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

2.5

BRANDING & THE BUYING PROCESS

In order to understand the context and the role of brands, it is important to clarify customers' underlying buying behaviour and the buying process. The buying process consists of five stages (Figure 2.3).

FIGURE 2.3 - FIVE-STAGE MODEL OF THE BUYING PROCESS NEED RECOGNITION

INFORMATION SEARCH

EVALUATION OF ALTERNATIVES

PURCHASE DECISION

POSTPURCHASE BEHAVIOUR

Source: Kotler, P., 'Marketing Management - Analysis, Planning, Implementation, and Control', (Europe: Prentice-Hall) 8th Ed., 1996, p.194

The process starts when the buyer recognises a need. This can be triggered by internal or external stimuli (advertisements). Once aroused, a consumer will be inclined to search for more information, either through heightened attention or through an active information search. Through gathering information, the consumer learns about competing brands, and evaluates them in terms of the degree to which their benefits and bundle of attributes satisfy their needs. Consumers differ as to which product / service attributes they see as important, and pay the most attention to the brands that will deliver the sought benefits. Therefore, it is critical to understand what attributes consumers value. Consumers develop a set of brand beliefs about the attributes of competing brands. These brand beliefs make up the brand image (this concept is re-visited in Chapter 3). These beliefs depend on their previous experiences with the brand, and the effect of selective perception, selective distortion, and selective retention. In the evaluation stage, the consumer forms preferences among brands and may form a purchase intention to buy the brand they prefer. However, two factors can intervene between the purchase intention and the purchase decision - attitudes of others and unexpected situational factors (Figure 2.4).

16

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

FIGURE 2.4

STEPS BETWEEN EVALUATION OF ALTERNATIVES AND A PURCHASE DECISION ATTITUDES OF OTHERS (WORD-OF-MOUTH)

EVALUATION OF ALTERNATIVES

PURCHASE INTENTION

PURCHASE DECISION UNEXPECTED SITUATIONAL FACTORS

If other people have had a negative experience with the brand, their negative attitude may influence the consumer's purchase intent or vice versa. A consumer's decision to modify, postpone, or avoid a purchase decision is heavily influenced by perceived risk. Expensive purchases involve some risk taking.

A consumer tries to deal with this by gathering

information from friends, and a preference for recognised brands they can trust. After a consumer has actually purchased the product or service, they will evaluate their level of satisfaction - the customer will be highly satisfied, somewhat satisfied, or dissatisfied with the purchase decision.

Satisfaction depends on how closely the brand's perceived

performance matches the customer's expectations. If perceived performance and quality exceed their expectations then they are satisfied, even delighted. If performance falls below their expectations, they will be dissatisfied and look for alternative brands in the future. Customers' expectations are particularly important when dealing with services, and especially important when dealing with purchases made through the Internet, as these services are intangible and therefore, customers make decisions purely on the basis of their expectations. These expectations are formed through a combination of past experiences, word-of-mouth, advertising and communication. The level of customer satisfaction will influence whether they buy the brand again and talk favourably or unfavourably about it to others. Highly satisfied and loyal customers tend to move directly from the need recognition stage to the purchase decision, locking out potential competitors. Customer satisfaction and loyalty are essential to creating successful brands.

17

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

2.6

THE IMPORTANCE OF CUSTOMER SATISFACTION AND LOYALTY

According to Thomas Jones and Earl Sasser (1995)6, customers at the lowest and highest ends of the satisfaction scale tend to have intense feelings about a brand and its products / services. The customers at the bottom end of the scale are "terrorists" - those who actively attack the brand telling others not to buy from the company. At the opposite end of the satisfaction spectrum are "apostles" - customers who are satisfied and loyal and talk favourably about the brand - Figure 2.5. FIGURE 2.5

THE SATISFACTION-LOYALTY RELATIONSHIP & THE IMPACT OF COMPETITIVE ENVIRONMENT HIGH

“HOSTAGES”

• •

“APOSTLES”

LOYALTY

NON COMPETITIVE ZONE

HIGHLY COMPETITIVE ZONE

• •

Regulated Proprietary technology • Few substitutes • High switching costs

“TERRORISTS”

“MERCENARIES”

Commodity Consumer indifference • Many substitutes • Low switching costs

LOW

1 Completely Dissatisfied

2

3 SATISFACTION

4

5 Completely Satisfied

Source: Jones, T., & Sasser, E., 'Why Satisfied Customers Defect' - Harvard Business Review, Nov-Dec 1995, p. 91

Loyalty is derived when customers are continuously satisfied over time. This satisfaction encompasses the whole experience and not just a company's products or services. Customers that are passionately or emotionally loyal are those that have built trust in a company, and believe that it will always act in their best interest. Trust is critical for a brand's success. Some traditional companies identified as having established a strong trust relationship with their customers include: Disney, Federal Express, Hewlett-Packard, Johnson & Johnson, Saturn, Southwest Airlines and Xerox7.

6 7

Jones, T., & Sasser, E., 'Why Satisfied Customers Defect' - Harvard Business Review, Nov-Dec 1995 Hart, C. W. and Johnson, M. D., 'Growing the Trust Relationship', Marketing Management, Spring 1999

18

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Loyal customers are assets. The benefits of strong customer relationships are: -

The average cost of acquiring a new customer is five times more than it costs to retain an existing one8

-

Loyal customers tend to spend more

-

Regular customers tend to place frequent, consistent orders

-

Satisfied customers are the best advertisement - they provide good word-of-mouth and are the best salespeople for the product / service

-

They are willing to pay premium prices to a supplier they know and trust

-

Gaining market entry or share becomes very difficult for competitors

-

It is easier to communicate with them on a regular basis

2.7

EMOTIONAL LOYALTY

Emotional loyalty can be brought about in two main ways. Firstly, emotional loyalty is born out of a consumer's personal relationship with a brand. This relationship can actually start through the satisfaction of a functional need or expressiveness (self-image) need. Consumers cross the threshold from a mere brand relationship into emotional loyalty when they "animate" the brand, giving quasi-human qualities and relate to it as they would to humans consider how Coke consumers felt betrayed when Coca-Cola decided to change their formula in 1985. Emotional loyalty can be also created through the formation of a strong user community around the brand. The consumer reaches emotional loyalty when membership in the brand's user community becomes an end in itself. In this way, the brand becomes a link for people for whom fulfilling similar aspirations is a major life theme (e.g. Harley-Davidson motorcycle clubs). There is also clear evidence of this on the Internet, with the emergence of "community brands9" such as Geocities ('home' of more than 3 million community members 'living' in 41 'neighbourhoods') and FortuneCity.com.

Some established brands are

successfully developing online communities around them such as Disney and Pentax (where professional and aspiring photographers can exchange tips and information on techniques and equipment). 8 9

Peppers, D. & Rogers, M., 'The One to One Future', 1993 McWilliam, G., 'Building Stronger Brands through Online Communities' - Sloan Management Review, Spring 2000

19

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Emotional loyalty leads to a deeper, almost irreplaceable bond as well as potentially to the negative feelings of betrayal. Emotionally loyal customers build a sense of trust and two-way commitment with the brand, which goes well beyond the satisfaction of a specific need. FIGURE 2.6 - CREATING EMOTIONAL LOYALTY TRIGGERS

• Congruence with Life Themes

PATHWAYS

THRESHOLDS

Personal Relationship with the Brand

Brand Personification

• Accomplishment of

EMOTIONAL LOYALTY

Life Projects

• Resolution of Current Concerns

User Community

Community as an End in itself

Source: Fournier, S., 'Consumers and Their Brands: Developing Relationship Theory in Consumer Research', Journal of Consumer Research, March 1998, pp. 343-373.

Satisfying customers and building loyalty (creating "apostles") is the ultimate objective behind building a brand, and understanding the needs and buying processes of the target market is essential. 2.8

THE CONCEPT OF BRAND EQUITY

Brands vary in the amount of power and value they have in the marketplace (Figure 2.7). FIGURE 2.7 - BRAND PROGRESSION UNKNOWN BRAND

BRAND AWARENESS

BRAND ACCEPTABILITY

BRAND PREFERENCE

BRAND LOYALTY

At one extreme, there are brands that are unknown by most buyers. Some brands have a fairly high degree of brand awareness (measured by brand recall and recognition). Beyond this, there are brands that customers perceive as acceptable and would not resist buying. A stronger brand enjoys a high degree of brand preference over competing brands. However, a 'powerbrand' tends to have a high degree of brand loyalty, whereby customers would be unwilling to substitute it with competitors' offers. 20

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

A strong brand is said to have high brand equity, which is the value of the brand over and above its commodity value. According to David Aaker (1991), brand equity "is a set of assets (and liabilities) linked to a brand's name and symbol that adds to (or subtracts from) the value provided by a product or service10". The major brand assets are brand loyalty, name awareness, perceived quality, strong brand associations, and other assets such as patents, trademarks, and relationships with distributors and strategic partners. The benefits of each are outlined in Figure 2.8. FIGURE 2.8 - BRAND EQUITY BRAND LOYALTY

• • •



BRAND AWARENESS





Anchor to which other associations can be attached Familiarity / Liking Signal of Substance / commitment Brand to be considered

• • • • •

Reason-to-Buy Differentiate / Position Price Channel Member Extensions





Help Process / Retrieve Information Reason-to-Buy Create Positive Attitude / Feelings Extensions



Competitive Advantage

• •

BRAND EQUITY PERCEIVED QUALITY

BRAND ASSOCIATIONS

OTHER PROPRIETARY BRAND ASSETS

Reduced Marketing Costs Trade Leverage Attracting New Customers - Create Awareness - Reassurance Time to Respond to Competitive Threats

• •

Provides Value to Customer by Enhancing Customer's: • Interpretation / processing of information • Confidence & Trust in the purchase decision • Use satisfaction Provides Value to Firm by Enhancing: • Efficiency and effectiveness of marketing programs • Brand loyalty • Prices / margins • Brand extensions • Trade leverage • Competitive advantage

Source: Aaker, D., 'Managing Brand Equity: Capitalising on the Value of a Brand Name', (New York: Free Press), 1991 10

Aaker, D., 'Managing Brand Equity: Capitalising on the Value of a Brand Name', (New York: Free Press), 1991

21

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

2.8.1

THE VALUE OF BRANDS TO CUSTOMERS

According to Jean-Noel Kapferer (1992)11, brands perform several functions that add value and customer benefits: •

Identification - To be clearly seen, to make sense of the offer, to quickly identify sought after products



Practicality - To save time and energy through identical repurchasing and loyalty



Guarantee - To be sure of finding the same quality no matter where or when you buy the product or service



Optimisation - To be sure of buying the best product in the category, the best performer for a particular purpose



Characterisation - To have confirmation of your self-image or the image that you present to others



Continuity - Satisfaction brought about through familiarity and intimacy with the brand that you have been consuming for years



Hedonistic - Satisfaction linked to the attractiveness of the brand, to its logo, to its communication



Ethical - Satisfaction linked to the responsible behaviour of the brand in its relationship with society

2.8.2

THE VALUE OF BRANDS TO COMPANIES

Brands create value for companies, in the following ways: •

Brands, market share and profits - Typically a brand leader obtains twice the market share of the number two brand, and the number two twice the share of the number three12. The brand leader is the most profitable and all beyond number two are unprofitable13.



Brand Leverage - The brand leader benefits from two main leverage effects: Higher volume leads to economies of scale in development, production and marketing; Premium pricing increases revenue.

11

Kapferer, J., 'Strategic Brand Management', (New York: Free Press), 1992 Worcester, R. & Downham, J., 'Consumer Market Research Handbook', (London: McGraw Hill), 3rd Ed., 1986 13 Golder, P. N., & Tellis, G., 'Pioneer Advantage: Marketing Logic or Marketing Legend?', Journal of Marketing Research, May 1993, pp. 158-170. 12

22

BUILDING SUCCESSFUL BRANDS ON THE INTERNET



The Value of Niche Brands - Dominating a niche market is usually more profitable than being fifth in a large market.



Brand Loyalty and Beliefs - Strong brands are more attractive to investors. Brand loyalty also reduces marketing costs and enables firms to override occasional problems (e.g. Johnson & Johnson with Tylenol).



The Brand Barrier - Brand leaders usually have the financial strength to fend off competitors. Potential competitors are usually reluctant to enter the market if existing brands satisfy customers. In addition, brand leaders can exploit their superiority in the market (e.g. Coca-Cola “the real thing”).



Avenues for Growth - The product life cycle applies to products, not brands. Companies can maintain a brand while modifying the underlying product to account for new technology, fashion or prevailing market conditions. The brand can also be used to penetrate new markets.



Motivating Stakeholders - Companies with strong brands attract good recruits. They also tend to elicit community and government support.

In trying to estimate the monetary value of brands, companies such as Interbrand (see Appendix A), and Young & Rubicam have created complex formulas, but there remains an ongoing controversy about how accurate and meaningful these measures are. 2.9

CONCLUSION

Branding is essentially about creating value through the provision of a compelling and consistent offering and customer experience that will satisfy customers and keep them coming back. When a company creates this type of customer preference and loyalty, it can build a strong market share, maintain good price levels and generate strong cash flows. This, in turn, drives up share price and provides the basis for future growth. The next chapter describes the process of how brands are built, the tools that are used, and the characteristics of successful brands.

23

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

CHAPTER 3

BUILDING BRANDS

24

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

3.1

INTRODUCTION

Building a strong brand is a complex task. This chapter spells out the traditional brandbuilding process, highlighting important factors that contribute to the success of each step along the way. The major characteristics of successful brands are also reviewed. 3.2

OVERVIEW OF THE BRAND-BUILDING PROCESS

The brand building process starts with the development of a strong value proposition. Once this has been established, the next step is to get customers to try the brand. If the offering is developed properly, it should provide a satisfactory experience and lead to a willingness to buy again. To entice trial and repeat purchase requires triggering mechanisms, which are created through advertising, promotion, selling, public relations, and direct marketing. The company needs to communicate the values of the brand and then reinforce brand associations to start the wheel of usage and experience, and keep it turning. Through the combination of the stimulus of consistent communications and satisfactory usage and experience, brand awareness, confidence and brand equity are built. This is illustrated in Figure 3.1. FIGURE 3.1 - BRAND BUILDING MECHANISM

PRESENTATIONS DISPLAY ADVERTISING

BRAND EQUITY

SELLING

PR

PROMOTION

POTENTIAL BRAND

TRIAL

LOYALTY PRODUCT/ PRODUCT OR SERVICE SERVICE

DIFFERENTIATION

ADDED VALUE

SATISFIED CUSTOMERS

25

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

3.3

THE VALUE PROPOSITION

Brand-building starts with a clearly defined value proposition - a strong offer that a potential customer would find compelling and interesting. In order to do this, a company must develop a strong understanding of who their potential customers are, what they value and how the products or services should be optimised or configured to deliver this value (Figure 3.2). The value proposition must be continuously re-evaluated to respond to changes in the marketplace. FIGURE 3.2 - DEFINE THE VALUE PROPOSITION

Who is your customer?

What is the optimal product or service offering that delivers this value?

What does your customer value?

Central to this value proposition, a brand must deliver a quality product or service that meets the functional needs of customers and differentiates itself from competitors. It should seek to augment its basic appeal with added value through the provision of additional products or services to delight customers. In this way, the brand can elicit feelings of confidence that it is of higher quality than competitors'. As such, a compelling value proposition is the combination of an effective product or service (P), a distinctive brand identity (I), and added value (AV).

BRAND = P

X

I

X

AV

These three characteristics are multiplicative rather than additive - each is essential. Without a good product or service, it is impossible to build a successful brand. Similarly, unless differentiation and awareness can be developed, it will never attract a strong client base.

26

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

3.3.1

Added Value

Added value is at the heart of building successful brands.

Most buying decisions are

influenced by brand values, which are additional to those based upon real performance. The large number of decisions, the pace of technical change, the number of competing alternatives and the large variety of advertising and selling messages, mean that buyers look for short cuts.

Reputable brand names provide confidence and allow customers to cut

through the risks and complexity of choice. Added values also occur when brands are bought for emotional reasons to satisfy other needs besides functional needs. People use brands to express their lifestyles, interests, values or wealth. Customers choose brands, which they perceive as meeting their needs. In today's affluent society, these needs are as likely to be about satisfying self-actualisation or esteem needs, or to gain a sense of belonging, as they are to be about satisfying basic physical and economic needs14. Brand values derive from five major sources15: •

Experience of Use - if a brand provides good service over time, it acquires added values of familiarity and proven reliability.



User Associations - brands frequently acquire an image from the type of people who are seen as using them. Advertising and sponsorship are often used to convey images of prestige or success by associating the brand with glamorous personalities.



Belief in Efficacy - in many cases, if customers have faith that a brand will work, it is more likely to work effectively for them. For pharmaceuticals, cosmetics and high-tech products, faith in brand generates satisfaction in use. Beliefs in efficacy can be created by comparative evaluations and rankings from consumer associations, industry endorsements and newspaper editorials.



Brand Appearance - the design, layout and appearance of the brand can clearly affect preference by offering cues to quality.



Manufacturers' Name and Reputation - In many situations a strong company name (e.g. Coca-Cola, Gillette, Sony, Hewlett-Packard, Kellogg's) attached to a new product will transfer positive associations, providing confidence and incentive to trial.

14 15

Doyle, P., 'Marketing Management and Strategy', 2nd Ed. (Europe: Prentice-Hall), 1998, pp. 169 Jones, J. P., 'What's in a Name? Advertising and the Concept of Brands' (Lexington, MA, Lexington Books), 1986

27

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

3.3.2

Distinctive Brand Identity

A brand identity is the message sent out by the brand through its name, features, visual appearance, and advertising. This may be different from the brand image, which depends on how the target market perceives the brand. A company should seek to differentiate its brand through developing a distinctive identity. Jean-Noël Kapferer (1992) identified three levels of a brand identity16 - Figure 3.3: •

The Brand Core - the fundamental or genetic code of the brand, which remains fixed over time.



The Brand Style - articulates the brand core in terms of the culture it conveys, its personality and its image or self-projection .



The Brand Theme - the way the brand communicates through its advertising, press releases, packaging, etc. Themes include the physical appearance (logo, colour scheme, and visual appearance), its reflection (e.g. type of spokesperson / customer image used to advertise the brand), and the relationship expressed (e.g. glamour, prestige, friendly).

Brand themes are the most flexible element and will tend to change with fashion, style or cultural differences from one country to another, however the brand style and core tend to be less flexible.

16

Kapferer, J., 'Strategic Brand Management', (New York: The Free Press), 1992

28

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

FIGURE 3.3 - KAPFERER'S BRAND IDENTITY PRISM PICTURE OF SENDER

RELATIONSHIP

PERSONALITY

BRAND CORE

CULTURE

INTERNALISATION

EXTERNALISATION

PHYSICAL

SELF-IMAGE

REFLECTION

BRAND STYLE BRAND THEMES

PICTURE OF RECIPIENT

Physical

The physical qualities and features of the product or service

Personality

The character of the brand and how it speaks of its products / services

Culture

The set of values feeding the brand's inspiration and energy

Relationship

The intangible exchange between the brand and the customer

Reflection

The image of the buyer or user the brand seems to be portraying

Self-Image

What the brand says about the user (in the user's mind)

Source: Adapted from Kapferer, J., 'Strategic Brand Management', (New York: Free Press), 1992

The brand prism enables management to understand the brand, its strengths and opportunities. Secondly, it helps in developing the brand strategy and the formulation of a distinctive positioning in the market. It also facilitates consistency in the message being transmitted through presentation (e.g. website design, structure and ease of use), advertising, below-the-line activities, and through line and brand extensions. Finally, understanding the brand's core and style helps set the perimeters of brand extensions - how far the brand can be meaningfully stretched to other products and market segments.

29

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

3.4

DEVELOPING THE FRAMEWORK & COMMUNICATING THE VALUE PROPOSITION

Once the value proposition is clearly defined, the company must ensure that it develops the appropriate structure, systems, strategy (partnerships and alliances), skills, management style, culture and staff needed to support, deliver and reinforce this value proposition (see Appendix B - The McKinsey 7-S Framework). The value proposition must then be articulated in terms of the 'marketing mix' - often referred to as the '4Ps' - Product and service features, Price, Promotion and Place (distribution strategy). The value proposition must be communicated to entice customers to try the product / service. If the offering is developed properly, it should lead to satisfaction and re-purchase. Before potential customers can buy a product / service, they must learn about it. This learning is called the adoption process17 - Figure 3.4. FIGURE 3.4 - INNOVATION-ADOPTION MODEL

AWARENESS

INTEREST

EVALUATION

TRIAL

ADOPTION

Source: Rogers, E., 'Diffusion of Innovations', (New York: Free Press), 1962, pp.79-86

The Innovation-Adoption Model consists of: •

Awareness - The company has to create awareness of the brand, and its products / services. Advertising and PR are common tools for achieving awareness.



Interest - Customers need to be stimulated to seek information about the brand's uses, features and advantages.



Evaluation - Customers consider whether the product / service will meet their particular needs. Personal sources such as word-of-mouth from friends, colleagues and opinion leaders become important influences at this stage.



Trial - The customer tries the product / service for the first time and decides whether to adopt it based on their expectations, and the product / service's perceived performance.



Adoption - The customer is satisfied and decides to make regular use of the product / service.

17

Rogers, E., 'Diffusion of Innovations', (New York: Free Press), 1962, pp.79-86

30

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Traditionally, companies have used the tools of the promotions mix - advertising, direct marketing, sales promotion, personal selling and public relations / publicity - to move customers through the adoption process. Advertising and public relations can be effective in generating awareness and interest.

Sales promotions and sampling are often used for

encouraging evaluation and trial. It is beneficial for companies to accelerate the adoption process before competitors emulate the benefits they offer. Enticing customers to purchase again and adopt the brand not only requires a successful trial experience, but enhanced customer interaction through relationship building. 3.5

BUILDING CUSTOMER RELATIONSHIPS

Building relationships with customers extends beyond a single transaction. This is often referred to as Customer Relationship Management (CRM). This focuses on establishing a longterm, multi-transaction relationship, when each trusts the other to deal fairly and reliably. Over time, this process enables an exchange of information, providing insight into customers' needs and wants. This information is a key competitive advantage, allowing companies to communicate regularly with their customers and customise their interaction. In this way, companies can increase buyers' satisfaction, making them less likely to switch to a competitor.

Customer service is an important element of this relationship.

Berry and

Parasuraman (1991) identified three customer relationship-building approaches18: •

Financial Benefits - such as airline frequent flyer programmes, & loyalty / discount cards.



Social Benefits - by learning customers' individual needs and wants and individualising and customising service and contact with the customer.



Structural Ties - for example, the company may supply customers with special equipment or tools (e.g. Internet linkages, software) to help customers interact with the company.

Through building relationships with customers, companies can increase the value of each customer, while strengthening the position and value of the brand.

18

Berry, L. & Parasuraman, A., 'Marketing Services: Competing Through Quality', (New York: Free Press), 1991, pp.136-142

31

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

3.6

CHARACTERISTICS OF SUCCESSFUL BRANDS

Several factors contributing to the success of brands have been identified19, including: •

A Quality Product / Service Experience - Satisfactory experience is the major determinant of brand values. If the quality of the experience deteriorates, or if the brand is surpassed by superior offers from competitors, then its position will be undermined.



First-Mover Advantage - Being first into the market does not necessarily bring success, but it makes the task easier. It is easier to capture a share of the consumer's mind and build a customer base, when the brand has no competitors to rival its position.



Unique Positioning Concept - If the brand is not the innovator, it must have a unique positioning concept - a segmentation scheme, value proposition or augmented brand, which will add value and distinguish it from competition.



Strong Communications Programme - A successful brand requires an effective selling, advertising or promotional campaign, which will communicate the brand's existence, its function and psychological values, trigger trial and reinforce commitment to it. Without building awareness, comprehension and intention to buy, the brand is meaningless.



Time and Consistency - Traditionally, brands were not built quickly. It often takes years to build up the added values, and establish a trusting relationship.

3.7

CONCLUSION

Building strong brands stems from the creation of a compelling value proposition. Once the framework has been established and the organisation configured to provide this proposition, companies must actively communicate it to the target audience to entice trial. As customers build trust in the brand through satisfaction of use and experience, companies have the opportunity to start building relationships with their customers, strengthening the brand further, and making it more difficult for competitors to emulate. The Internet provides the opportunity for companies to create compelling value propositions never before possible, while providing new tools for promotion, interaction and relationship building. As a result, it has a profound impact on the traditional brand-building process. As such, the next chapter explores the characteristics of the Internet and its impact on the business and competitive environment. 19

Doyle, P., 'Marketing Management & Strategy', (Europe: Prentice-Hall), 1998, 2nd Ed., pp.176-177

32

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

CHAPTER 4

THE INTERNET

33

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

4.1

INTRODUCTION

The Internet is transforming the business environment, creating new challenges and opportunities.

This chapter provides an overview of the Internet and its defining

characteristics, highlighting the key developments that have contributed to its explosive growth and its impact on the business environment. 4.2

OVERVIEW OF THE INTERNET

The Internet is a world-wide network of networks. In essence, it is a common technology platform that allows computing devices to communicate with each other. In doing so, it offers a number of alternative channels that enable businesses and people to communicate. The three core channels include e-mail (the most common), news groups and mailing lists, and the 'world wide web' (www) - Figure 4.1. FIGURE 4.1 - THE THREE LEVELS OF THE INTERNET NEWS GROUPS & MAILING LISTS Allow users to communicate with each other, but in practice not in real time.

E-MAIL Is the part of the Internet that most users use at present. The system works as an electronic mailing system and can be used as a real time medium

WWW AND CHAT ROOMS Are used by more and more people, and provide the opportunity for the creation of Interactivity

The world wide web (www) is a large network of documents, which contain hypertext and pictures, and provides the opportunity for dynamic interaction. Hypertext allows information to be organised in a user-friendly way that is easily accessible. Information is becoming a major part of the products and services that people buy, and a critical source of added value.

34

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

4.2.1 The Defining Characteristics of the Internet The distinctive characteristics of the Internet can be summarised in three key points: •

It Dramatically Reduces Information Costs - the cost of searching for information and the cost of the information itself is significantly reduced (and in many cases is free).



It Allows for Two-way Communication and Interactivity - this radically alters the process of interaction between communicating parties, allowing both parties to identify each other and build one-to-one relationships - not previously available with mass medium forms of communication.



It Overcomes the Barriers of Time and Space - The Internet is a global network and can be reached from everywhere, regardless of where the computer or Internet access device is physically located. The Internet can also be accessed at any time - 24 hours a day, 7 days a week. These qualities eliminate the barriers of time and space that exist in the physical world.

These characteristics combine to create a very powerful medium. By allowing for direct, ubiquitous links to anyone, anywhere, the Internet lets individuals and companies build interactive relationships with customers and suppliers, and deliver new products and services at low cost. These defining characteristics have fuelled its explosive growth. 4.3

THE GROWTH OF THE INTERNET

The origins of the Internet date back to 1969, when the United States Defence Department developed the 'ARPAnet', which was intended to link military networks together.

The

context of the Internet and certain key developments are highlighted in the Figure 4.2 (Note: Graph is not drawn to scale).

35

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

FIGURE 4.2 - GROWTH IN INTERNET HOST COMPUTERS AND MAJOR DEVELOPMENTS 1995: Dell, Cisco and Amazon begin to aggressively use Internet for commercial transactions

100,000,000

1993:

10,000,000

Mosaic browser invented at University of Illinois is released to public

1,000,000

1989:

1994:

WWW HTML Language invented

100,000

Netscape releases Navigator browser

1991: National Science Foundation (NSF) lifts restrictions on commercial use of Internet

1969: 10,000

Internet / ARPAnet was created

1,000 100 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 Source: Network Wizards, 1998, as cited in 'E-Business Technology Forecast' - a PricewaterhouseCoopers Report, 2000

The growth of personal computing technology in the 1980s, largely contributed to the accelerated adoption of the Internet and the world-wide web (www) which far outstrips that of previous technologies - Figure 4.3.

FIGURE 4.3 - ACCELERATED RATE OF NEW TECHNOLOGY ACCEPTANCE YEARS TO REACH 10 MILLION CUSTOMERS www

2

PC

7

VCR

9

Fax

22

Cable TV

25 41

Pager 0

5

10

15

20

Source: The Economist, 1996 (www.economist.com)

36

25

30

35

40

45

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

The number of Internet users is constantly increasing and by end-2000, there will be an estimated 375 million Internet users world-wide, increasing to 500 million users by 200220. This boom has been the result of several underlying forces that have come together: -

The wider availability of the Internet, offering inexpensive bandwidth.

-

Easier access to these networks provided by point-and-click web browsers.

-

Multimedia development tools that can be used to create rich content.

-

The emergence of open standards in development tools and at the network protocol level (e.g. TCP/IP), making it more cost effective for software developers and other technology providers to create interoperable products.

-

The growth in support services (e.g. web design, hosting, and gateway services).

-

The development of critical processes (ordering, billing, payment, etc.).

The most important factor has been that users are becoming accustomed to the Internet and are rapidly overcoming any inhibitions concerning e-commerce. As shown in Figure 4.4, the momentum created by all these forces has created a virtuous cycle of growth. FIGURE 4.4 - THE VIRTUOUS GROWTH CYCLE OF THE INTERNET INFRASTRUCTURE DEVELOPS

COMMUNITIES OF INTEREST PROLIFERATE

- Low-cost networking alternatives - High-powered servers - Attractive infrastructure and middleware software - Cheap bandwidth - Momentum toward open standards

COMPUTING SERVICES BECOME MORE WIDESPREAD

- E-Marketplaces - Content Aggregators - Consumer Aggregators TECHNOLOGY AND SERVICE PROVIDERS MULTIPLY

-

- Cheap microprocessors & RAM - Higher PC penetration among consumers and companies - New generation of PDAs and Internet appliances

Web site designers Outsourced networks Web hosts Ancillary services

Source: Harrington, L., Reed, G., 'Electronic Commerce (finally) Comes of Age', The McKinsey Quarterly, 1996, No.2 20

'World Online Populations' - CyberAtlas Internet Statistics and Market Research, 2000 (http://cyberatlas.internet.com)

37

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

A recent study by the Stanford Institute for the Quantitative Study of Society (2000), reveals the wide range of areas where people are embracing the Internet - from communicating (90% use e-mail) and sourcing information, to interacting (e.g. chat rooms, entertainment) and purchasing (37%) - Figure 4.5. These activities highlight the adoption of the Internet as an interactive, communication and information tool.

FIGURE 4.5 - WHAT ARE PEOPLE DOING ONLINE? E-mail General Info Surfing Reading Hobbies Product Info Travel Info Work / Business Entertainment Purchasing Stock Quotes Job Search Chat Rooms Homework Auctions Banking Trading Stocks 0%

20%

40%

60%

80%

100%

Source: Stanford Institute for the Quantitative Study of Society, as cited in the Economist Intelligence Unit (EIU), April 13, 2000 (www.eiu.com)

38

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

4.4

THE INTERNET AND E-COMMERCE

E-commerce describes the use of the Internet as a medium and as a market for commerce. The main difference between the Internet and other electronic media (i.e. fax, telephone) is that the Internet goes beyond just enabling transactions.

The Internet becomes an

information-rich 'virtual' market space through which buyers and sellers interact. These 'virtual' marketplaces are not fixed in physical territory but are created by the combination of standards-based networks, web browsers, software, content, and people.

Conducting

business over the Internet ('e-business') represents a fundamental shift in how buyers and sellers interact. The buyer and seller 'face' each other through an electronic connection. There is no need to travel to a physical location, no order book, and no cash register. Instead there is a website. The value of e-commerce transactions and market forecasts vary widely among research firms and government agencies. However, they all project the value e-commerce transactions to grow at unprecedented rates.

Figure 4.6 outlines the growth in the value of online

Business-to-Business commerce (B2B) and Business-to-Consumer (B2C) transactions, as projected by Gartner Group. FIGURE 4.6 - WORLD-WIDE COMMERCE ON THE INTERNET (1998-2003) 5000

B2C B2B

4500 4000

Billions US$

3500 3000 2500 2000 1500 1000 500 0 1998

1999

2000

2001 Year

Source: Gartner Group, April 2000

39

2002

2003

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

4.5

THE IMPACT OF THE INTERNET ON BUSINESS

The Internet has had a profound impact on the way business is being conducted - how companies operate, how they compete and how they serve their customers - and revolutionary new business models are emerging, which are often disruptive to traditional business models21.

Although the particular impact will differ between industries, a number of

sweeping impacts are identifiable: The Development of Electronic Intermediation The Internet is enabling companies to break through organisational and geographic boundaries to create new structures that link businesses 'virtually' (electronically) with customers, suppliers, partners and other corporate constituencies. By allowing customers to talk knowledgeably and directly to suppliers, the Internet is sidelining the role of many traditional intermediaries, and transforming traditional distribution channels.

This is

threatening to undermine many old established brands. At the same time, the explosion of information is placing a premium on skilled information management. New brands and business models are emerging to seize this opportunity, some of which look set to become the superbrands of the future (e.g. Yahoo!). Improved Core Business Processes The use of Internet-based technologies as the platform over which the organisation’s processes flow, represents a level of efficiency and integration previously unattainable. For example, CISCO e-enabled its financial systems and now has the capability to close its financial year within one day.

Additionally, the Internet provides the opportunity for

companies to integrate with their suppliers and customers in real-time and create previously unachievable synergies at a very low cost.

Improved business processes and 'virtual

integration' have allowed companies to move from 'make-to-sell' to 'make-to-order' modes of operation (e.g. Dell Computers). Globalisation of Business The Internet facilitates the globalisation of business by providing access to a global audience. A 'virtual' presence can mitigate the cost of having to invest in physical facilities. The Internet also facilitates the development and co-ordination of global activities (e.g. through the use of extranets). 21

Christensen, C., & Overdorf, M., 'Meeting the Challenge of Disruptive Change', Harvard Business Review, March - April 2000, Volume 78 Issue 2, pp. 66-76

40

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

The Balance of Power is Shifting to the Customer The Internet empowers customers, as they have access to more information leading to more informed decision-making. It also provides easy access to competitors' offers and allows customers to consider every available alternative. As a result, switching costs are much lower.

According to George Colony, CEO of Forrester Research22, these new highly

informed customers are "empowered fruit flies", with no time, little loyalty, quick evolution and all the power. They can move from one supplier to another searching for the best prices, highest convenience and quickest satisfaction.

Customers have more options than ever

before - they can choose between traditional 'bricks-and-mortar' companies, online stores, or catalogues. This is forcing companies to become flexible and responsive to customer needs, ensuring the delivery of a satisfying customer experience. Competition is Intensifying Although the Internet removes the geographical constraints of reaching customers, it also removes the geographical protection from competitors, as they are just one 'click' away. This, combined with the emergence of electronic intermediaries, the diminishing barriers-to-entry and the lower switching costs, has resulted in a fierce competitive environment. Knowledge is Becoming a Key Strategic Asset Many companies have recognised that if they want to succeed, their organisations must harness knowledge - internally and externally - in developing products, improving processes, getting closer to customers and ultimately staying ahead of competitors. Internet technology can be used to exploit collective learning and knowledge, allowing employees to share knowledge, collaborate more effectively and ultimately embed organisational intelligence within processes, products and services. The Pace of Business is Accelerating With the fast pace of technological change, the globalisation of business, fierce competition, empowered customers, the development of a knowledge economy, and the 24 x 7 environment, the typical clock-speed at which companies need to operate has accelerated. Now companies need to move at warp-speed, to capture new opportunities, commit and deploy resources, constantly innovate, respond to competitive and market dynamics, and reorganise as appropriate. 22

Colony, G., 'Empowered Fruit Flies' - Forrester Research, 2000 (www.forrester.com)

41

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Revolutionising Sales and Brand Management The Internet provides companies with a new channel to reach a new breed of customer. Enhanced communication capabilities allow companies to build one-to-one relationships with their customers and suppliers that were previously impossible.

It allows companies to

improve customer service, achieve global reach and realise a new source of cost advantage. As such, it provides the opportunity to reach customers where they want, when they want, how they want and with the levels of customer service they demand. New Ways of Organising and Structuring Business Transformed communications costs and capabilities are helping to drive a fundamental rethink of how firms should organise themselves. Examples of emerging information age business structures include flat versus hierarchical, extensive outsourcing, supply chain cooperation, and multiple strategic alliances and partnerships. The opportunity of linking the complete supply chain 'virtually', combined with intense competitive pressures, and the need for speed and flexibility have accelerated the unbundling of business systems. Increasingly, companies are focusing on the part of the value chain that is most valued by customers or where their company has a core competence, and partnering up with the best for the remaining activities. In this way, companies can provide customers with a strong value proposition by offering them the best in quality, variety, information, advice and convenience. The Strategic Importance of Alliances and Partnerships Although this point has already been touched upon, alliances and partnerships have taken on a new level of strategic importance. Traditionally, companies have looked upon alliances only as a means of filling gaps, and most traditional partnerships were vertical, linking companies with suppliers and customers up and down a pre-defined value chain. However, most Internet and e-commerce partnerships extend beyond this, linking companies with competitors and players from entirely different industries and business sectors, thus creating a 'value net23'. The extent of this partnering is illustrated in Figure 4.7, which highlights the typical structure and dynamics of an online company.

23

'The Future of E-Business' - A Research Report by TeslaGroup, 1999 - (www.teslagroup.com)

42

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

FIGURE 4.7 - THE STRUCTURE OF AN ONLINE COMPANY SUPPLIER

CUSTOMER

SUPPLIER

PORTALS

FULFILMENT AND DISTRIBUTION PARTNERS

SPECIALTY SUPPLIER

SPECIALTY SUPPLIER

CUSTOMER STRATEGIC MARKETING ALLIANCES

www.dot.com CONTENT PARTNERS

• Print Media • Broadcast • Online

JOINT VENTURE PARTNERSHIP

CUSTOMER

AFFILIATE PROGRAMME CUSTOMER

OUTSOURCING / TECH PARTNERS

BACK OFFICE FRONT OFFICE

• • • •

OFFLINE PRESENCE

Customer Services Creative Site Development Hosting

CUSTOMER

Source: Adapted from Freeland, D. G., & Stirton, S. 'Organising for e-Commerce' - a Boston Consulting Group (BCG) Analysis, April 2000

In an attempt to provide a rich customer experience, many online companies are blending together the products and services of a wide range of companies. This provides customers with added value, while making the offering hard to duplicate off-line. Partnering with portals and affiliate web sites is important in driving traffic to a web site. Rapid and extensive partnering is also an effective way to achieve the first-mover advantage that can prove essential towards establishing a competitive advantage. 4.6

CONCLUSION

The Internet and its strategic impact are not technological issues - they are business issues. The Internet is transforming every business to some degree. New opportunities for efficiency and co-ordination are emerging, competition is intensifying, the pace of business is accelerating and power is shifting to the customer. As such, it is transforming the competitive landscape and brand-building environment, while triggering the emergence of new brandbuilding strategies, tools and opportunities. This is the substance of the next chapter. 43

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

CHAPTER 5

BUILDING BRANDS ON THE INTERNET

44

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

5.1

INTRODUCTION

The Internet is changing the brand environment or 'brandscape'. This chapter explores the new dynamics of brands and the critical importance of customer loyalty online.

New

strategies and tools for building brands on the Internet are identified, including the interactive approach to attracting customers and building loyalty. The limitations of brand-building on the Internet are also discussed. 5.2

THE NEW DYNAMICS OF BRANDS

Traditionally, in addition to providing added value, brands were a substitute for information a way for consumers to simplify the time-consuming process of search and comparison before deciding what to buy. However, the Internet makes search and comparison much easier. This threatens to undermine the value of brands. On the other hand, the logic of the Internet cuts another way. Transactions on the Internet require customers to provide detailed personal information - names, addresses, credit card numbers, etc. Generally, people have concerns about sharing personal information. In addition, the intangible nature of the Internet, and the fact that customers are buying goods that, in most cases, they have never handled or seen (except on-screen), has placed greater importance on trust and security. People only tend to transact with sites they know and trust - sites that provide a wealth of information and make comparison shopping easy, where the user feels a part of, and sites that understand the user's needs and preferences24. This highlights the surfacing of information and relationships as key sources of added value in the Internet economy. Customers derive added value through the provision of information on the products or services they buy, as well as on topics of interest related to the brand and product characteristics25. Traditionally, brands have been developed in an environment whereby a company creates a brand, and projects it onto a third party intermediary (the media). In response, many unnamed customers develop a 'relationship' with the brand. The Internet, on the other hand, offers interactivity, whereby the company can establish a dialogue and 24

Marathe, J., 'Internet Portals' - Durlacher Research, May 1999 (www.durlacher.com)

45

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

interact with individual consumers on a one-to-one basis26. In doing so, a company can listen, learn, understand and relate to customers, rather than simply speaking at customers. This creates the opportunity for companies to build stronger relationships than previously attainable. However, this also poses a challenge as these relationships may take on a life and character of their own. The differences between the traditional approach and the one-to-one approach are outlined in Table 5.1. TABLE 5.1 - THE EMERGING BRAND-BUILDING ENVIRONMENT TRADITIONAL APPROACH

ONE-TO-ONE APPROACH



Monologue



Dialogue



Public



Private



Mass



Individual



Anonymous



Named



Adversarial



Collaborative



Focused primarily on one-off transactions



Focused on relationship over time



Remote Research



Intimate learning



Manipulative, 'stimulus-response' approach



Genuine needs driven, service approach



Standardised



Customised

The Internet gives companies control over all their interactions with customers and therefore, brand-building must focus on the end-to-end customer experience - from the promises made in the value proposition, to its delivery to the customer.

In maximising the customer

experience, companies have to find innovative ways of leveraging the information and relationship building characteristics of the Internet.

25

McCann, Prof. J., 'Adding Product Value Through Information', - Fuqua School of Business, Duke University, January 28, 1997 (www.duke.edu) 26 Peppers, D., Rogers, M., & Dorf, B., 'Is Your Company Ready for One-to-One Marketing?' - Harvard Business Review, January-February, 1999, pp. 151-160

46

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

5.3

THE IMPORTANCE OF ONLINE CUSTOMER LOYALTY

According to a recent study27, 75% of senior executives believe the success of an e-business initiative depends entirely on its ability to build customer loyalty. In fact, it could be argued that customer loyalty is even more critical online. This view is reinforced by in-depth studies carried out by Bain & Co. (2000) which identified the following factors28: -

Companies will not break-even on one-time shoppers - often, customer acquisition costs are high, and to recover their investment, companies need to retain customers so that they return to the site repeatedly. Many e-retailers ('e-tailers') are averaging more than $100 to acquire a new customer, and some are spending over $50029. Therefore, it is very unlikely that an online retailer can break even on a one-time shopper, unless they are selling high-price, high-margin items.

-

Repeat purchasers spend more and generate larger transactions - due to more frequent shopping and larger purchases.

-

Repeat customers refer more people and bring in more business - word-of-mouth is the single most effective and economical way online businesses grow their sites.

-

Loyal customers are more willing to buy other products from the company. For example, almost 70% of The Gap online shoppers said that they would consider buying furniture from The Gap.

Repeat purchasing not only binds trust, but also provides more

opportunities for cross-selling. These points stress the importance of online customer loyalty, and with customers holding all the power, companies must ensure that they provide a completely satisfying end-to-end customer experience. This is further reinforced by the fact that, on average, a disgruntled online customer tells 10 people about a poor experience30.

27

'Electronic Business Outlook', - Research by PricewaterhouseCoopers / The Conference Board, 1999 (www.pwcglobal.com and www.converence-board.org) 28 Rigby, D., Baveja, S., Rastogi, S., Zook, C., Chu, J., & Hancock, R., 'The Value of Online Customer Loyalty and How You Can Capture it', - A Mainspring Communication Report in collaboration with Bain & Co., March 17, 2000 (www.bain.com) 29 Hoffman, D. L. and Novak, T. P., 'How to Acquire Customers on the Web', Harvard Business Review, MayJune 2000 30 A Forrester Research Study, as cited in 'Creating a High-Impact Digital Customer Experience' - An A. T. Kearney White Paper, 2000

47

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

5.4

INCREASING RETURNS ECONOMICS & FIRST-MOVER ADVANTAGE

Economists have traditionally taught that businesses grow to the point where returns to scale diminish, as the benefits of scale are overwhelmed by the disadvantages of size31. However, this is not the case on the Internet. Once the up-front investments are made (for research and development and technology infrastructure), additional products, customisation for individual customers, and other features can be added or changed at low marginal cost. Similarly, additional customers and transactions can be managed with limited fixed cost investment. As a result, each additional unit sold does not cost more than the last to deliver, and in the case of information-based products, the costs approach zero32. Even more important, businesses and online communities that rely on connectivity can enjoy 'network effects', (also referred to as 'viral economics'), where the value of the network, and the value that each member realises, increases disproportionately as more people join the network, as illustrated in Figure 5.1. FIGURE 5.1 - THE NETWORK EFFECT

2 PARTICIPANTS 1 POSSIBLE INTERACTION

3 PARTICIPANTS 3 POSSIBLE INTERACTIONS

6 PARTICIPANTS 15 POSSIBLE INTERACTIONS

8 PARTICIPANTS 28 POSSIBLE INTERACTIONS

THE NETWORK EFFECT = N(N-1)/2 31

4 PARTICIPANTS 6 POSSIBLE INTERACTIONS

where N is the number of users

Lipsey, R. G., 'Positive Economics', 7th Ed., (London: Harper & Row), 1989, pp. 180-182

48

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

These characteristics suggest there may be 'first-mover' advantages for businesses that establish leadership positions. With no competitors around, being first into a market makes it easier to capture the consumer's share of mind. As the company builds a customer base and develops a relationship with customers, its ability to track customer preferences and customise offerings improves, enhancing the interaction. This makes it more efficient in improving product selection, cross-selling and up-selling33. It also allows online companies to tap supplementary revenue streams, including direct marketing, advertising and referrals, delivering increased margin per customer - Figure 5.2.

FIGURE 5.2 - THE VIRTUOUS SPIRAL OF ONLINE GROWTH

SCALEABLE, DEFENSIBLE MODEL

INCREASED RICHNESS & REACH OF CUSTOMER RELATIONSHIPS

LONG-TERM COMPETITIVE ADVANTAGES

• Brand experience • Customer loyalty / high switching costs • Sourcing and distribution leverage from scale • Learning curve effects

• Unique value added for customers • Scaleable customer service, fulfilment • Defensible advantage against competitors

ENHANCED REVENUE STREAMS

• Broad and deep customer insight • Personalisation and customisation offerings • Enhanced selection • Comprehensive convenience

• Core transactional revenue cross-sell and up-sell • New items / categories • Supplemental revenue advertising, direct marketing, link revenues

32 33

Melnicoff, R. M., '5 Rules of the eEconomy', Outlook 1999, No. 21 - A Publication by Andersen Consulting 'The State of Online Retailing' - A Shop.org Study in collaboration with The Boston Consulting Group, Nov 1998

49

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

In addition, the larger customer base provides online companies with more leverage in attracting and negotiating with key content, commerce and distribution partners. This, in turn, provides added value and strengthens the company's ability to build customer loyalty and instil switching costs. An expanding customer base enables retailers to amortise the cost of brand-building over a larger base.

Given the connectivity of the Internet among

customers, larger sites can leverage more customer advocates to reduce customer acquisition costs. Larger sites can also negotiate better supplier discounts or product placement fees. This snowball effect favours first-movers, as once a strong lead is established, the leader will pick up momentum and will stand to gain an insurmountable advantage - unless the leader makes a serious mistake, or until a competitor finds a way to change the game again. When a company reaches 'critical mass', the brand begins to take hold, and the cost of switching to an alternative brand becomes quite high, leading to the exponential expansion of the customer base. By the time a company has reached critical mass, its growth curve relative to a new entrant is somewhat daunting. As a result, the value of the company rises exponentially with market share. This is the logic behind some of the extraordinary valuations of Internet companies. These factors help to understand why many online companies are spending aggressively (up to 65% of their revenue34) on marketing and site development to acquire customers and build critical mass. New marketing strategies, such as 'viral' marketing, have emerged in attempts to exploit the network effect and potential exponential growth of the customer base. 5.5

VIRAL MARKETING

Viral Marketing is a marketing technique that induces web sites or users to pass on a marketing message to other sites or users, creating a potentially exponential growth (like a virus) in the message's visibility and effect. It is often referred to as "word-of-mouth", "creating a buzz", "leveraging the media", and "network marketing". Word-of-mouth is a particularly powerful medium, as it carries the implied endorsement from a friend. The Internet, with its e-mail lists, web sites, chat rooms and bulletin boards, makes communication tighter, and word-of-mouth even more effective. As a result, viral marketing is an effective tool in getting a message out fast, with a minimal budget and maximum effect. 34

'The State of Online Retailing' - A Shop.org Study in collaboration with The Boston Consulting Group, Nov 1998

50

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

5.5.1 The Case of Hotmail.com The classic example of viral marketing is Hotmail.com, a company now owned by Microsoft. Hotmail.com was one of the first free web-based e-mail services, and they created a subscriber base more rapidly than any company in history. Today they are the largest e-mail provider in the world with over 40 million users. Their strategy was: • Give away free e-mail addresses and services • Attach a simple tag at the bottom of every free message sent out, saying: • "Get Your Private, Free Email at http://www.hotmail.com" • Then stand back while people e-mail their network of friends and associates • These people then see the message, sign up for their own free e-mail, and then propel the message even further to their own ever-increasing circles of friends and associates. • Each new user becomes a company salesperson, and the message spreads organically. In its first 1.5 years, Hotmail acquired over 12 million subscribers. A traditional print publication would hope to reach 100,000 subscribers within a few years of launch, but Hotmail signs up more than 150,000 subscribers every day, seven days a week. Digital viruses can spread internationally more rapidly than biological viruses that rely on the physical proximity of the host. In fact, Hotmail is used in over 160 countries and is the largest e-mail provider in countries such as Sweden and India, where they have never carried out any promotional activities.

Other companies have adopted viral marketing techniques such as Mirabilis (acquired by AOL), eGroups and Geocities (both recently acquired by Yahoo!).

Geocities enables

people to create personal websites for free. When a user builds a website, they tell all their friends to visit it, and in doing so spread the word for Geocities. If a company can provide a strong enough incentive for customers to share their lists of personal contacts, whether for communications or community, they will have a powerful viral opportunity at their disposal. A good virus will look for prolific hosts (such as students) and tie into their high frequency social interactions (such as e-mail and messaging).

51

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

5.6

THE ONLINE EXPERIENCE & THE 7CS FRAMEWORK

The 7Cs Framework35 outlines the major components that add value and contribute to the quality of an online experience (Figure 5.3). In essence, the 7Cs are a continuation and restatement of marketing's traditional 4Ps (Product, Price, Promotion, Place). FIGURE 5.3 - THE 7CS FRAMEWORK

CONVENIENCE

COMMUNICATION

CONTENT

The 7Cs CUSTOMER CARE

CUSTOMISATION

COMMUNITY

CONNECTIVITY

Source: Adapted from 'Creating a High-Impact Digital Customer Experience' - An A. T. Kearney White Paper, 2000

Convenience Convenience goes beyond the ability to conduct transactions around the clock.

The

customers' ability to access and display information rapidly is extremely important36. Sites that are difficult to use can cause frustration, making customers 'click off' to another site. In fact, 30% of potential customers leave sites because they cannot find what they are looking for, and 66% of people who start a 'shopping basket' fail to complete the transaction37. As

35

'Creating a High-Impact Digital Customer Experience' - An A. T. Kearney White Paper, 2000 'The E-business Technology Forecast' - A PricewaterhouseCoopers Report, 2000 37 Rigby, D., Baveja, S., Rastogi, S., Zook, C., Chu, J., & Hancock, R., 'The Value of Online Customer Loyalty and How You Can Capture it', - A Mainspring Communication Report in collaboration with Bain & Co., March 17, 2000 (www.bain.com) 36

52

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

shown in Figure 5.4, ease-of-use, ease-of-navigation, and fast response times are among the most important factors in establishing web brand loyalty38, whereas a slow response time and site downtime will have a significant negative impact.

FIGURE 5.4 - FACTORS AFFECTING WEB BRAND LOYALTY KEYS TO WEB BRAND LO YALTY 40%

37%

36%

36% 27%

30% 20% 10% 0% Ease of Use & Navigation

Fast Response Time

Familiarity

Relevant & Accurate Information

KILLERS O F WEB BRAND LO YALTY 40% 30%

26%

24%

22%

20%

16%

10% 0% Outdated Information

Slow Site Downtime Response Time

Poor Customer Service

Source: Cognitiative Inc. as cited in Business Week Magazine, 29th October 1999 (www.businessweek.com)

Content Content is relevant and useful information directed at the needs and interests of the targeted users. With almost infinite display space and inventory capability, online companies have the opportunity to provide rich, up-to-date information, expert insights, and a wide range of products, which can enhance the company's value proposition. Content is considered to be a 'sticky' application39 as it entices visitors to spend longer periods of time on the site.

38 39

Cognitiative Inc. as cited in Business Week, October 29, 1999 (www.businessweek.com) Davenport, T., 'Sticky Business', CIO Magazine, February 2000 Issue

53

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

A certain amount of 'commerce content' is important to support the purchase decision. According to Forrester Research40, 31% of online consumers use the Internet for obtaining product information, even if they purchase offline, and nearly 20% use it for post-sales support. Good content can help to educate buyers and sellers and create a greater sense of control over the transaction. On the other hand, visitors should not be engulfed with too much information. Other content includes community-generated content, and advertising (if it is relevant and useful). Customisation Customisation involves tailoring the presentation of a web-site to individuals, based on profile information, demographics, or prior transactions. Online sites can track a customer's purchase history and modify its service accordingly. Often, sites allow 'surfers' to customise their experience by choosing what type of information they view through personalised sites (such as My Yahoo!), as well as through loyalty programmes that provide targeted benefits. Some companies have taken this a step further and customise the product or service on offer (Dell offers 'made-to-order' computers through Dell Online). Customisation creates the feeling of a one-to-one relationship, which enhances the user's online experience. Community Online communities are emerging as new gathering places for consumers with similar interests (e.g. iVillage and Geocities). These sites allow members to interact with one another, share information and access a wide range of services. An important contribution of these communities is that they provide members with a medium to communicate with each other. Members can interact in chat rooms, use bulletin boards, and organise live events. A unique characteristic of an online community is that the site includes both editorial content (determined by the site owner) and member driven content. An online community offers a compelling way to entice customers back to a site. It fosters a sense of belonging41 among the members, which is facilitated by a combination of factors (Figure 5.5). For a community to work, it needs a critical mass of members42.

40

Morrisette, S., Clemmer, K., & Bluestein, W. - A Forrester Research Report, 1999 (www.forrester.com) McWilliam, G., 'Building Stronger Brands through Online Communities' - Sloan Management Review, Spring 2000 42 Armstrong, A., & Hagel, J., 'Real Profits from Virtual Communities' - The McKinsey Quarterly, 1995, No. 3. 41

54

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

FIGURE 5.5 - THE COMMUNITY HEXAGON

PRECISELY TAILORED CONTENT MUTUAL BENEFITS OF PARTICIPATION

IDENTIFICATION WITH THE BRAND

SENSE OF BELONGING OPPORTUNITY TO SHAPE THE DEVELOPMENT OF WEBSITE

AWARENESS OF OTHER LIKE-MINDED USERS

ABILITY TO INTERACT WITH OTHERS ON WEBSITE

Source: Mole, C., Mulcahy, M., O'Donnell & Gupta, A., 'Making Real Sense of Virtual Communities' - A PricewaterhouseCoopers Study, 1999

Communities enhance the speed and value of information sharing, allowing customers to deepen their experience with a brand and build more personal connection, and can create emotional loyalty, when membership in the brand's community becomes an end in itself43. Connectivity Connectivity is concerned with site-to-site connectivity and user-to-site connectivity. Site-tosite connectivity focuses on connecting users to other relevant sites. Companies can provide a selection of related links that complement the site's purpose and value proposition, as well as attracting traffic from other sites. Connectivity is enhanced by linking to search engines / portals44 and popular sites where target customers are likely to be browsing (see Figure 5.6). This is similar to placing offline stores in high traffic areas. Once customers know of a site, they opt to input the URL (Internet address - www.brand-name.com) directly into the browser and access the site immediately. 43

Fournier, S., 'Consumers and Their Brands: Developing Relationship Theory in Consumer Research', Journal of Consumer Research, March 1998, pp. 343-373. 44 Search engines / portals enable users to find information based on relevancy to a query or keywords.

55

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

FIGURE 5.6 - CUSTOMER ACCESS TO INFORMATION

INTERNET ACCESS DEVICE

CUSTOMER

SOFTWARE AND BROWSER

PORTAL

CUSTOMER SIDE

VERTICAL PORTAL

WEBSITE

INTERNET SIDE

User-to-site connectivity focuses on providing incentives for users to connect back to the site. The development of loyalty programmes, which provide targeted and unique (customised) benefits to the customer, serves this purpose and helps to build customer loyalty. Other tools such as bookmarking the page can also facilitate connectivity.

Customer Care Online customers often require assistance and reassurance. Customers share security and privacy concerns, and a recent survey by MarketWatch45 revealed that 62% of surfers feel that giving out personal information on the Internet is unsafe. Therefore, customer support at all stages of the interaction is important, and can be provided through e-mail, online chat, toll-free telephone numbers, and FAQ pages (Frequently Asked Questions) to solve problems. In addition, customer care activities can involve providing a variety of payment, delivery and return options, as well as features such as gift-wrapping.

Communication The Internet provides the opportunity to establish dialogue with customers through e-mail, live chat, and online surveys. Communication can be tailored to specific user interests and should allow for two-way interaction. It is important in building relationships, as well as informing and reminding customers of special offers, news up-dates, activities, events and subjects of interest to the customer.

45

MarketWatch, (www.marketwatch.com)

56

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

5.7

THE INTERACTIVE BRAND-BUILDING MODEL

The stages in building a loyal customer base are outlined in Figure 5.7, which is basically a reformulation of the Innovation-Adoption Model (Chapter 3, Figure 3.4 - Awareness, Interest, Evaluation, Trial, Adoption), modified to take into account of the interactive dynamics of the Internet. This model consists of five stages - Attract, Engage, Retain, Learn and Relate.

FIGURE 5.7 - THE INTERACTIVE BRAND-BUILDING MODEL

AND

ATE R EL

T RES N TE TI O N TE I A ERA ICIP GEN PART

ATTRACT AGE ENG

T RE M

UM NS K CO A C RE B SU M E O E AK C

N AI

ER

LE AR

S’

LE

A

CUS TO TOMI PR O S VID E INTE EU R NIQ ACTI O UE VAL N UE

ATTRACT CONSUMERS TO THE APPLICATION

N

RN A PR BO E UT F E R CO E N N CE SUM S E

RS ’

Source: Adapted from Kierzkowski, A., McQuade, S., Waitman, R., & Zeisser, M., 'Marketing to the Digital Consumer', McKinsey Quarterly, 1996, No.2, pp. 180-183 (www.mckinseyquarterly.com)

Attract The critical first step of the digital customer experience is to attract 'eyeballs', and bring people to the site for the first time. The company must build awareness and communicate its value proposition to its target customers. This is more difficult online than offline, because there is no physical presence. Therefore, visibility relies solely on Communication. The mechanisms to communicate range from traditional media (TV, billboards, Magazines, Newspapers, etc.) to online tools, including affiliate programmes with other websites, links from directory searches (Connectivity), e-mail notifications and banner advertisements. The popularity and effectiveness of the different promotion methods are outlined in Figure 5.8. 57

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

FIGURE 5.8 - WEBSITE PROMOTION METHODS - POPULARITY & EFFECTIVENESS Method

Popularity

Effectiveness (Scored 0 - 5)

Banners

89 %

2.8

E-mails to Customers

77 %

4.3

Buttons

55 %

3.2

Public Relations

45 %

4.1

Magazines

34 %

3.4

Sponsorships

34 %

3.3

Newspapers

32 %

2.6

Radio

32 %

3.4

Direct Mail

30 %

3.4

Television

30 %

4.0

E-mail to opt-in lists

23 %

3.5

Outdoor

17 %

3.7

Affiliate Programmes

17 %

4.3

Source: Forrester Research, as cited in 'Targeting Consumers via the Internet' - Economist Intelligence Unit 2000 (www.ebusinessforum.com)

The most effective methods are direct e-mail, affiliate programmes, public relations and television advertising. Online companies must ensure that the cost of attracting and acquiring customers is lower than the average lifetime value of these customers (LVC)46. Kapferer's Brand Prism (Ch. 3, Fig. 3.3) is useful to ensure that a company develops a distinct and consistent brand identity. Creativity is also an important factor in gaining attention in today's cluttered marketplace. Attracting customers is only the first step in building online brands. Companies then need to engage customers to obtain their interest and participation.

Engage With the multitude of choice available on the Internet, it is important to quickly engage consumers' interest before they move on. The key factors at this stage are Convenience combined with interesting Content.

46

The Lifetime Value of a Customer (LVC) is an economic measure that is derived by calculating the average profit per transaction, multiplied by the expected rate of transactions, discounted over the expected duration of the brand-customer relationship.

58

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Retain Maintaining ongoing contact is essential for building relationships. It is the extension of engaging and focuses on keeping a customer on the site through the use of sticky applications. Content is the basic driver of retaining customers on a site, and must be continuously updated due to the multiple visit nature of customers.

The objective is to increase the

conversion rate (% of browsers converted into buyers), and retaining customers and engaging them on an ongoing basis results in increased product purchase opportunities and provides the opportunity to learn more about the customer, and forge closer relationships than any offline operator. Communities and Customisation are other sticky applications.

Learn The Internet provides extensive opportunities to learn about consumers (demographics, attitudes and behaviour). The initial site registration provides an early opportunity to obtain useful information. Building up a knowledge database on each customer - who they are and why they shop online, and what additional products and services are they interested in provides companies with valuable information which, if used properly, can create value for the customer and help build the brand-customer relationship.

Relate By leveraging the multidimensional data gathered from ongoing interactions with individual customers, a company can create value by providing a personalised online experience. This helps to create a customer base that spends more time and money at a site. Customisation and good Customer Care help to erect switching barriers and encourages customers to return and repeat the cycle.

5.8

LIMITATIONS OF BRAND-BUILDING ON THE INTERNET

It would be unrealistic not to acknowledge some of the limitations to what the Internet can offer the brand-building process: • The Internet does not have the penetration of other promotional mediums (e.g. TV, Radio). • The Internet supports brand-building activities where there is a need to build a relationship. Certain product categories, such as groceries and convenience goods, do not lend themselves to a need for customers to build a relationship with the brand (Figure 5.9). 59

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

FIGURE 5.9 - CATEGORIES SUITABLE FOR INTERACTIVE MARKETING HIGH FIT WITH INTERACTIVE MEDIA

SOFTWARE SELECTED GROCERIES

MUSIC BOOKS

INTERACTIVE GAMES

SPORTING GOODS

REAL ESTATE BROKERAGE

TOYS

AUTOS

HIGH-END APPAREL FINE JEWELLRY

GASOLINE

LOW

TRAVEL SERVICES

WHITE GOODS

CONVENIENCE STORES

LOW

FINANCIAL SERVICES

INSURANCE

NEWS

MEDICAL SERVICES CONSUMER ELECTRONICS BABY PRODUCTS

POTENTIAL FOR RELATIONSHIP BUILDING

HIGH

Source: Kierzkowski, A., McQuade, S., Waitman, R., & Zeisser, M., 'Marketing to the Digital Consumer', McKinsey Quarterly, 1996, No.2, pp. 180-183 (www.mckinseyquarterly.com)

• Not all product categories have a strong fit with interactive media as they still need real life interaction, and the need to stimulate the other senses (taste, touch, smell). • Brand-building favours products that can be sold online. However, it is not economically feasible to sell certain products, especially in small quantities, due to high delivery and transaction costs (relative to the value of the product).

5.9

CONCLUSION

On the Internet, the experience is the brand. In order to create "apostles", companies must provide a satisfying end-to-end customer experience - from the promises made in the value proposition, to its delivery to the customer. Given the high acquisition costs of online customers, it is critical for companies to build relationships and foster brand loyalty. The 7Cs Framework outlines the key components of the brand experience and the sources of added value. The interactive brand-building process involves attracting, engaging and retaining customers, and as the relationship develops, the interaction provides the ability for companies to learn from their customers and relate, providing further added value. The next chapter analyses the brand-building efforts of seven companies.

These case studies provide a

practical insight into how companies are building their online brands. 60

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

CHAPTER 6

CASE STUDIES

61

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

6.1

INTRODUCTION

This chapter provides an analysis of seven companies. Each case is presented in the same format including, a company overview, its value proposition, the sources of added value (using the 7Cs Framework), its brand-building strategy (how it generates traffic), and other key factors that have contributed to its success (or failure). The cases are presented in the following sequence - Amazon.com, Barnesandnoble.com, Boo.com, CDnow, eBay,

Gap.com and Yahoo!. 6.2

CASE STUDY: AMAZON.COM

6.2.1 Company Overview Amazon.com has become synonymous with e-commerce, and is one of the few Internet brands that is recognised all over the world. It is the 57th most valuable brand in the world47, and the most widely recognised e-commerce brand name in the US (with 60% awareness48). Amazon serves over 23 million customers from 160 countries, and has sales of over $2 billion. In addition, it is the most visited e-commerce website in America, and one of the top two or three in Britain, France, Germany and Japan49. In July 1995, Amazon.com launched with a mission to use the Internet to transform book buying into a fast, easy, and enjoyable experience. Amazon.com has since evolved from being an online bookseller into a one-stop shop with "Earth's Biggest SelectionTM" of more than 18 million products, ranging from books and music to auctions and zShops (a portal / marketplace that online sellers can use to sell their products), and has equity investments in several e-tailers. Figure 6.1 outlines Amazon's timeline and major milestones.

6.2.2 Value Proposition Amazon.com's success stems from its compelling value proposition.

Amazon provides

increased added value on several dimensions, including: increased selection, discounted prices, more information, greater convenience, and higher levels of customisation and service than the traditional shopping experience allows.

In addition, Amazon has cultivated a

reputation for excellence, innovation and delivering on its promises. Through its provision of a one-stop shopping experience, combined with its levels of customisation and customer service, Amazon has been able to differentiate itself from other online competitors. 47

Interbrand (www.interbrand.com) - see Appendix A. 'Amazon.com - It's an Ocean, Not a River' - Goldman Sachs Report, November 11, 1999 49 'Amazon's Amazing Ambition' - The Economist, February 26, 2000 (www.economist.com) 48

62

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

TABLE 6.1 1994 1995 1996 1997

July July July May July September October November December

1998 February March May June July August September October November December 1999 January February March

AMAZON.COM - TIMELINE AND MAJOR MILESTONES -

Amazon.com is founded by Jeff Bezos Amazon.com goes live Amazon launches Associate Programme Amazon IPOs for $49million. Company has a market capitalisation of $561 million Amazon enters into agreement with Yahoo! Amazon becomes exclusive bookseller for Excite Amazon becomes exclusive bookseller on Prodigy shopping Network Amazon becomes exclusive bookseller on Alta Vista Amazon and Netscape announce strategic online deal Amazon opens second distribution centre Amazon and Geocities strike exclusive bookseller agreement Amazon completes $74 million credit facility

-

Amazon Associates Member Programme surpasses 30,000 members Amazon.com Kids goes online Amazon acquires Bookpages and Telebook to expand in the UK Amazon opens Music Store Amazon establishes relationship with Intuit's personal finance website and select desktop software. Amazon buys PlanetAll ad Junglee Corporation Amazon and Yahoo! Strike Global Merchant Agreement Amazon.com enters European book market Microsoft signs Amazon.com as Premier Merchant on MSN shopping Cyberian outpost joins product retailers on Amazon.com's new shopping referral service

-

August

-

October

-

April May July

November December

-

2000 January

February

March April

May

Amazon opens third distribution centre to meet rapid growth Amazon invests in DrugStore.com Amazon invests in Pets.com Amazon launches online Auction site Amazon agrees to purchase Live/bid.com, provider of live auctions Amazon adds Kansas distribution centre to handle rapid growth Amazon launches greeting-card service Amazon invests in HomeGrocer.com Amazon announces further plans to expand distribution network to meet rapid growth. Amazon.com Electronics and Amazon.com Toys & Games is launched Amazon announces strategic alliance and invests in Gear.com Amazon introduces "Purchase CirclesTM", featuring thousands of bestseller lists for hometowns, workplaces, universities, and more Amazon launches "Amazon.com Anywhere," providing shopping from wireless devices, such as the Palm VII organiser. Amazon opens another customer-service centre to meet rapid growth Amazon launches 4 new stores: Home Improvement, Software, Video Games and Gift Ideas Amazon and Sotheby's launch www.sothebys.amazon.com Amazon acquires Back to Basics Toys to add to Amazon.com Toy Store Amazon announces a multi-million dollar marketing and strategic alliance with, and minority investment in, Ashford.com Amazon and Sprint First offer Internet shopping on wireless phones

- Amazon opens a customer service centre in Huntington, West Virginia, to meet rapid growth - Amazon and online car-buying service Greenlight.com Announce Strategic Investment and Promotional Agreement - Amazon enters into a strategic partnership with Drugstore.com - Amazon enters strategic alliance with living.com to create a "home living" store at amazon.com - Amazon.com Auctions and zShops provide new tools to its merchant community - Amazon launches www.toolcrib.amazon.com, a tools and equipment store for professional tool users and woodworkers - Amazon announces investment in kozmo.com - Amazon and eziba.com announce investment and strategic alliance - Amazon opens customer service centre in The Hague - Amazon launches lawn & patio store - Amazon launches health and beauty store - Amazon.com invests in wineshopper.com - Customers can shop at Amazon.com via the new wireless pocket PC - Amazon surpasses 20 million cumulative customer accounts - Amazon launches new kitchen store - Amazon.com and NextCard launch co-branded credit card - New home living store from living.com opens its virtual doors at amazon.com

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6.2.3 Sources of Value - The 7Cs Framework Convenience Amazon provides value-added features to increase the ease of shopping, encourage repeat visits and drive higher conversion rates. The site is easy-to-use, offering multiple paths to a given book or product. The site is designed to minimise download time (limited graphics) for users on modems and despite the heavy traffic, downloads quickly and services visitors adequately - Figure 6.1.

FIGURE 6.1 - OVERVIEW OF AMAZON.COM'S WEBSITE

Wide selection of product categories Immediate customer recognition and customisation of product offering

Simple, logically structured, easy-to-use, and quick-to-load pages

Over time, Amazon has added other features for shopping convenience, such as the Amazon.com All Product search (searches the entire web), the 1-ClickTM express checkout, gift click, wish lists, gift reminders, and Amazon.com Anywhere to support access from wireless devices (i.e. mobile phones, Palm VII PDA device).

Content Amazon provides content on several levels, including book jacket images, book summaries, expert reviews, customer testimonials, recommendations, interviews with authors, discussion boards, and customer Purchase CirclesTM. Customer purchase circles allow shoppers to cross-reference similarities such as where people work, live or study. This is an example of

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BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Amazon's ability to data mine its vast customer base of information to learn and relate by making recommendations and presenting items on the web page that have a high probability of being of interest to particular customers - thereby increasing conversion rates.

By

leveraging its vast customer base, Amazon's content is not reproducible by competition, and therefore, creates a competitive advantage.

Customisation Amazon provides customised features and services, from the customer recognition at the point of interface (Figure 6.1) to the content and recommendations based on consumers' purchase history and Purchase CirclesTM.

In doing so, Amazon creates one-to-one

relationships with its customers, which helps to build loyalty and create switching costs, while driving up repeat purchases and cross-selling opportunities.

Community Amazon has also added a community element to the purchasing process, and ingeniously turned booklovers' predilections into a source of differentiation by soliciting and posting readers' comments with book displays. This builds the loyalty of both the customers who write reviews and the customers who find community among like-minded people. More recently, Amazon introduced Amazon.com Discussion Boards to further enhancing the community feel by allowing customers to share information on topics of interest.

Connectivity Amazon has built relationships with high traffic web portals and sites, converting them into a storefront for Amazon, and has developed an Associates Programme, linking it to a large number of other sites. These are discussed in more detail in Section 6.2.4.

Customer Care Amazon places great emphasis on satisfying customers and providing high levels of customer service. This customer-centricity is evident in all Amazon's activities, from its shopping basket applications which lists the estimated time to delivery reliably, to the proactive notification of new items of interest, real-time shipping and backorder notices, and customer interaction. All these activities exploit the communications capability of the web and e-mail to offer greater customer 'touch' and better customer service.

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Communication Amazon maintains close communication with customers. Once orders are placed, they are subsequently confirmed by e-mail, and customers are also e-mailed when the items are shipped from the warehouse. In addition, two personalised services, Eyes and Editors, help maintain contact and build traffic by e-mailing customers when desired products or books become available. As a result of all these factors (7Cs), Amazon has been able to create a strong value proposition and compelling online experience that engages and retains customers, enticing them to return to the site and purchase repeatedly.

6.2.4 Brand-Building Strategy Amazon has attracted traffic in a number of ways. Through the first half of 1996, Amazon had primarily relied on word-of-mouth among tightly knit online communities (newsgroups and chat rooms) to create a 'cyberbuzz' and improve its visibility. In the second half of 1996, it began to advertise in print media and online - a move that along with the novelty of its business model and the newness of the Internet, helped generate publicity and stories about the company in publications such as The Wall Street Journal, The Financial Times, Business Week, Newsweek, New Yorker and The Economist. In July 1996, Amazon inaugurated the Associates Programme under which other websites could display the Amazon.com hot-link and offer specific books of interest to their visitors. This enabled Amazon to reach more customer segments and niches (Figure 6.2). Instead of paying directly for this exposure, Amazon offered Associates referral fees of up to 15%, which only applied to sales that resulted from the initial click-through, and not subsequent purchases. The Associates Programme has been phenomenally successful, attracting member sites of all sizes, and by 1999 it had over 200,000 members, increasing to over 500,000 by August 2000.

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BUILDING SUCCESSFUL BRANDS ON THE INTERNET

FIGURE 6.2 - AMAZON.COM'S ASSOCIATES PROGRAMME

Source: Amazon.com's website (www.amazon.com)

Amazon has developed alliances and partnerships with high traffic web portals and sites. From July 1997 to December 1998, Amazon closed deals with five of the six most visited Internet addresses, including: America Online (AOL), Netscape's Netcenter and

NetSearch, Yahoo!, and Geocities.

These multimillion-dollar, multiyear deals involve

exclusive book-selling rights, mutual links, and primary button placement on web portal search engines. The Yahoo! agreement, was also linked to Amazon's entry into Europe Amazon.de became the local provider for Yahoo! Germany and Amazon.co.uk the local provider for Yahoo! UK & Ireland. Amazon also established agreements with AltaVista,

Excite, Prodigy and @home. In addition, Amazon has used viral marketing techniques through customer reviews, free eCards and gift certificates (which customers send to friends, thereby promoting Amazon.com). Interesting viral initiatives include: •

Amazon.com Refer-A-Friend - customers are encouraged to provide e-mail addresses of friends. In return, each friend is sent a $5 Amazon.com gift certificate (in your name), and you are given a $5 gift certificate for each customer you provide. Therefore, the customer acquisition cost is only £10.



Amazon.com About Me - allows customers to create a personal profile (with pictures) on the site. People tend to tell their friends about it, spreading the word for Amazon.com.

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BUILDING SUCCESSFUL BRANDS ON THE INTERNET

The majority of customers continue to be attracted through word-of-mouth, however, with the explosion of websites, Amazon has also incorporated traditional offline media (TV, Magazines, billboards, newspapers) to generate awareness. According to Jeff Bezos, "we had a world-class site the day we launched - but it was only a tenth as good as the site we have now. And we relied on word-of-mouth to build awareness, so we didn't have to do much advertising. That's not possible anymore50". Amazon's expansion into new e-tailing categories and non-e-tailing businesses (auctions and zShops) have significantly increased product availability while leveraging the site's enormous customer traffic to create additional revenue streams. This has also helped to generate incremental traffic at no cost to Amazon's existing businesses, resulting in increased sales for existing e-tailing sectors and therefore 'monetising' their customer base. This strategy has created an efficient traffic-generating machine by creating virtual loops of traffic so that Amazon is top of mind when customers go online. With this combination of promotional methods, Amazon has been able to achieve average customer acquisition costs of less than $20 - significantly lower than other online companies. Once customers are attracted to the site, Amazon's proven online merchandise selling techniques including easy-to-use search options, clear presentation, interesting content, community feel (as discussed previously), have been instrumental in engaging and retaining customers' on the site and driving higher conversion rates. As the relationship develops, Amazon maintains a database of customer preferences, buying patterns and viewing habits, which is analysed (learning) and used to provide value-added services such as the introduction of new product categories, and improved customisation and recommendations (e.g. Purchase CirclesTM). By relating to customer needs, Amazon is building customer loyalty and encouraging repeat business, which accounts for 66% of Amazon's sales.

50

Willis, C., 'Does Amazon.com Really Matter?' - Forbes, April 6, 1998

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6.2.5 Other Factors that Contribute to their Brand Leadership Innovation & First-Mover Advantage As an early-mover on the Internet and a first-mover in online bookselling, Amazon has been able to build a strong brand at relatively low cost, due to the hype and coverage it was given. This has helped them attract customers and move up the learning curve quickly, establishing Amazon as the leading online bookseller with a large customer base. In addition, Amazon was able to secure partnerships and alliances with key players, further enhancing their value proposition. Nevertheless, Amazon is constantly seeking new ways of improving its offering, and according to Jeff Bezos, "we're not a stationary target. We were blessed with a two-year head start, and our goal is to increase that gap51".

Customer Focus & Reputation for Excellence Amazon's customer focus is evident throughout all its activities. According to Jeff Bezos, "Online, the balance of power shifts away from the company and goes towards the customer. Our secret is that we have not been competitor obsessed. We have been customer obsessed, while our competitors have been Amazon.com obsessed52". As such, Amazon continually invests in re-working and improving its technology infrastructure and software (80% in backoffice operations), developing customer service centres and expanding its distribution network to support high levels of service, establishing a reputation for excellence and fulfilment.

Distinct Brand Identity Jeff Bezos chose the name 'Amazon', because he wanted it to be short, memorable, to capture the spirit of the site, and to convey its vast size and offering. In addition, he wanted the name to start with an 'A' so that it would appear at the top of search engine lists. Amazon's understanding of its brand identity has been a critical factor. Amazon received criticism for expanding its product line, thereby diluting the value of its association with books. However, management realised that Amazon had become more associated with other core brand values - a wide range of choice, good value, and its safe and secure delivery. As such, Amazon has been successful in stretching its brand to include new categories and non-e-tailing businesses. For example, in June 1998, Amazon unveiled a music store, which within six months propelled Amazon to one of the leading online music retailers. According to Jeff Bezos, 51 52

Hazleton, L., 'Jeff Bezos: How he Built a Billion-Dollar Net Worth Before his Company Even Turned a Profit', Success, July 1998. Saunders, R., 'Business the Amazon.com Way', (Oxford: Capstone Publishing), 1999

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"Brands to a certain degree are like quick-drying cement. When they're young, they're stretchable and pliant, but over time they become more and more associated with a particular thing and harder to stretch53".

6.2.6 Conclusion Amazon has achieved a customer base of over 23 million people and an annual revenue run rate of over $2 billion in less than five years. The key factors driving its growth and high retention rates, stem from its compelling value proposition and high quality end-to-end customer experience. Amazon has also benefited from a first-mover advantage giving it an edge over competitors, however, Amazon's intense focus on customer needs and continual innovation, have kept it ahead. This customer-centricity is a key hallmark of a successful Internet brand. Amazon also recognised that service quality is a perception, not necessarily a reality. Amazon delivers on its promises of a wide inventory of products, secure payment procedures, speedy delivery and good value. Quality is only measurable in the minds of visitors to the site, and to sustain a positive image and satisfactory end-to-end experience, Amazon has continuously invested in customer service, distribution centres and upgrading the site, with new products and value added content. In doing so, they have cultivated a reputation for excellence and fulfilment, which is critical on the Internet. Although Amazon has successfully built a strong brand and loyal customer base, it has not recorded any profits to date. Nevertheless, Amazon is claiming to be making profits on its books and music categories, perhaps trying to defend its view that losses taken to build market share can reap profits later. However, if it continues to incur losses, and investors lose confidence, the drain on their cash resources will push them towards bankruptcy. This raises a critical issue, as the true value of a brand lies in its sustainability.

53

Warner, B., 'Marketers of the Year: Jeff Bezos, Volume Discounter' - Brandweek, October 12, 1998

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6.3

CASE STUDY: BARNESANDNOBLE.COM

6.3.1 Company Overview Barnesandnoble.com is the fourth largest e-commerce retailer54, and is the second largest online bookseller (after Amazon.com). Besides books, Barnesandnoble.com provides other online categories offering software, magazines, music, prints & posters and related products. Launched in 1997, Barnesandnoble.com was able to 'hit the ground running', as it could capitalise on the infrastructure and back-end operations (warehouses, contacts, book databases, etc.) established by its parent company, Barnes & Noble Inc. Barnes & Noble Inc. is one of the best known traditional booksellers in the United States, and currently operates 520 Barnes & Noble superstores (located in cities and high traffic areas), and 470 B. Dalton bookstores (located in shopping malls).

However, all front-end operations (marketing,

promotion) between the online store and the retail stores have been kept separate. Currently, Barnesandnoble.com is approximately 40% owned by Barnes & Noble, Inc., 40% owned by Bertelsmann AG, and 20% owned by the public. Barnesandnoble.com's timeline and major milestones is outlined in Figure 6.2.

TABLE 6.2

BARNESANDNOBLE.COM - TIMELINE AND MAJOR MILESTONES

1997 January

- Barnes & Nobles announces plans to become the exclusive bookseller on America Online's (AOL's) Marketplace March - Barnes & Noble went online at AOL May - Barnesandnoble.com launched its website (www.barnesandnoble.com) - Announces distribution relationship with New York Times September - Launches Affiliate Network December - Forges distribution deal with AOL

1998 March May July October

November -

1999 May July August October December 2000 January February May June

July

-

Develops distribution alliance with Wired Digital Launches revamped site, including software store Launches Business Solutions programme Sells 50% stake to Bertelsmann for $200 million Adds used, rare, and out-of-print books to inventory Attempts to buy Ingram Book Group $450 million IPO Price war erupts with Amazon.com Launches Music Store Announces plans to develop huge distribution centre Launches Prints & Posters Gallery and electronic greeting card service Unveils 'bn.com on the Go' to provide access to wireless devices

- Barnesandnoble.com and Microsoft announce that they will create an eBook superstore - Launches Internet Radio - Offers same day delivery in Manhatten - Acquires minority stake in NotHarvard.com - Launches BNTV - Acquires equity stake in Mightwords - Barnes & Noble.com announces strategic relationship with Palm Computing - Barnes & Noble University opens registration for free online courses - Launches Video Store

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6.3.2 Value Proposition Barnesandnoble.com offers customers an easy-to-search catalogue of virtually every book currently in print, as well as an extended searchable catalogue of millions of out-of-print, previously-owned and rare books. In addition, they offer customers fast delivery, good prices, easy and secure ordering, rich editorial content and a community experience.

6.3.3 Sources of Value - The 7Cs Framework With decades of experience in developing 'bricks-and-mortar' stores, Barnes & Noble planned to dominate online book-selling, but instead of developing an outstanding interface to its inventory, the company created a site very similar to Amazon.com's (Figure 6.3).

FIGURE 6.3 - OVERVIEW OF BARNESANDNOBLE.COM'S WEBSITE

Simple, logically structured, and easy-to-navigate site Categories focus on books, software, music New Initiatives

Barnesandnoble.com's virtual storefront is graphically richer than Amazon.com's and takes a bit longer to download, however, in terms of the 7Cs framework, the features are practically identical. Both Amazon.com and barnesandnoble.com let customers sign up to receive email reviews and announcements of new titles. Both offer detailed bibliographic information, including title, author, edition, publisher, etc. Both have expanded their convenience to offer 54

Media Metrix, as cited on Barnesandnoble.com's website (www.barnesandnoble.com or www.bn.com)

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access through wireless devices. Both offer customisation that permits users to personalise the experience. Both try to foster a community of readers by letting customers post reviews online. Both offer 'associate programmes' that let other websites link to their sites, and both are expanding globally. Although, Barnesandnoble.com has created a high quality website and customer experience, it lags behind first-mover Amazon.com. Barnesandnoble.com closed 1999 with 4 million customers, while Amazon.com had over 17 million. Barnesandnoble.com's 1999 revenues were $202.6 million, compared to Amazon.com's $1.64 billion.

Barnesandnoble.com's

market capitalisation was $251 million, while Amazon.com was valued at $21.1 billion. The reasons for this are explained in the next section.

6.3.4 Brand-Building Strategy Barnesandnoble.com has run extensive and effective online advertising and has used the full range of traditional media to build awareness and encourage trial. They have also signed exclusive and non-exclusive book-selling deals with major websites including AOL (fouryear deal costing $40 million55), Lycos, Webcrawler, Yahoo!, Netscape and Microsoft

Network, and have formed strategic partnerships with ten of the top twenty websites (others include ZDnet and CNN). They have developed an affiliate programme that links sites to Barnesandnoble.com in return for a commission on any purchases that they originated - a replica of Amazon's Associates Programme. As of February 2000, this programme had more than 300,000 affiliates in its referral network. These initiatives have generated traffic to the site, however, there is little mention of the online store in the traditional 'bricks-and-mortar' stores, and Barnes & Noble Inc, has yet to leverage its strong brand in cyberspace. Instead, the largest US bookseller has rigorously kept its 40% owned net operations separate in an attempt to tap into the investor frenzy for pure online players, prevent cannibalisation of its existing business, and avoid charging sales tax in states where it has stores56. However, this decision to keep the relationship with the bricks-and-mortar stores at arm's length has had major repercussions.

55 56

'AOL is paid $40 Million in 4-Year Marketing Pact' - The Wall Street Journal, December 17, 1997 Internet and mail order companies are only required to collect sales taxes in states or localities where they have a physical presence such as a store or a warehouse

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Barnesandnoble.com's key differentiator from Amazon.com is its association with Barnes & Noble Inc., and the tangibility that this provides.

By failing to leverage it,

Barnesandnoble.com has lost access to valuable customers. At any given point there are hundreds of customers browsing their aisles looking for something to read. Unfortunately, people began using their stores as a physical showcase for online rivals such as Amazon.com. Barnesandnoble.com should have aggressively cross-promoted their stores through advertising, in-store displays, and Internet terminals in the bookstores. Other synergies would include the ability to ship books ordered online to the stores closest to customers for added convenience, or deliver books directly from the retailers.

Recent Initiatives Barnesandnoble.com has begun to acknowledge some of these mistakes, and in recent months has aggressively sought new ways to differentiate itself, and leverage its real-world presence, in the attempt to gain traction and build momentum. These include: •

More effort is being focused on bringing the retailers in sync with barnesandnoble.com. To signal its intentions, Barnesandnoble.com has changed its name to Barnes & Noble.com, and the retailers have distributed more than 10 million bags promoting the website and containing a coupon offering a discount on online purchases.



Barnesandnoble.com created a new cross-marketing genre in February 2000, when it struck reciprocal marketing deals with Expedia.com, Jcrew.com, LLbean.com, 1-800Flowers.com, Petsmart.com, Planetrx.com and VitaminShoppe.com. Under the seven separate agreements, Barnesandnoble.com offers links to each partner's site and a discount for visitors who click-through. In return, each partner offers a similar link to Barnesandnoble.com, with a similar discount. This broke new ground in web-marketing relationships as no money is exchanged and no third party entity is involved.



Barnesandnoble.com's link to Bertelsmann AG, provides access to valuable resources, content and distribution opportunities, as Bertelsmann's book division includes partners such as Random House, and its BMG Entertainment division includes music giants Arista Records and RCA Records.



In addition, Barnesandnoble.com has introduced new innovative features such as Barnes & Noble Television (a web broadcast initiative that provides content and shopping via the Internet), Barnes & Noble University (a free online education resource), and a same-day delivery option in Manhattan. 74

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6.3.6 Conclusion Although Barnesandnoble.com has been able to create a high impact and high-quality customer experience, it has not been able to establish itself as the leading online bookseller. Barnesandnoble.com's late start in 1997, meant that Amazon.com had made many of the same moves a few years earlier and had a sizeable and loyal customer base, a wellestablished Internet brand, significant market momentum, and was further up the growth curve. In addition, its failure to leverage its bricks-and-mortar stores to drive traffic to its site, and its lack of innovation (by copying Amazon, feature for feature) has failed to differentiate Barnesandnoble.com and has given them the image of a second rate 'me too' brand.

The Press have also contributed, by portraying them as slow and clumsy in

comparison to the more nimble Amazon.com. Although the decision to keep the online operations separate from the retail outlets freed the start-up from bureaucracy and from charging sales tax, and allowed them to offer stock options as compensation and achieve a high market capitalisation, it also caused a major setback. The company failed to leverage its established brand, customer relationships and offline presence - its key differentiating factors. Barnesandnoble.com's experience is instructive.

Bricks-and-mortar stores looking to

translate their brand strength online must be willing to vigorously cross promote the two ventures, even if that means eating into their existing sales, otherwise they risk losing out to other online competitors. According to Goldman Sachs' Anthony Noto "If you have a brand you shouldn't have to spend as much to build awareness, and you shouldn't have to start from scratch when converting traditional shoppers to online shoppers57".

57

'Bn.com - Not a Best Seller' - Forbes, August 4, 2000 (www.forbes.com)

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6.4

CASE STUDY: BOO.COM

6.4.1 Company Overview Founded in 1999, Boo.com launched with the goal of being the world's "first truly online retailer of sportswear and fashion", and was billed as one of Europe's hottest e-commerce ventures. Boo.com had set the record as Europe's best-funded European Internet Start-up, receiving $125 million of funding, arranged through J. P. Morgan, and included high profile investors such as Bernard Arnault, Chairman of LVMH (owns Louis Vuitton and Christian Dior) and 21 Investimenti (Benetton Group), among others. After a high profile launch, the company was hindered by technical problems that delayed the site going live by five months (until November 1999). On going live, Boo.com entered six markets: US, England, Sweden, Finland, Germany and Denmark. They intended to add France, Italy and Spain within a few months, and eventually debut in Asia, as well as create a kid's site. However, within six months Boo.com collapsed through lack of funds, due to its poor performance and inability to build a customer base, and the resulting loss of investors' confidence.

TABLE 6.3 1999 Mid year

November 2000 January

February May

BOO.COM - TIMELINE AND MAJOR MILESTONES - Raises funding of $125 million - Site goes live - Multi-million pound advertising campaign created by BMP DDB - First sign of problems - they redesign site, sack 20% of staff and sell stock at 40% discount - Announces it has only 500,000 unique visitors - Appeals for $30 million more funding - fails and appoints KPMG as liquidator. Company is put up for sale.

6.4.2 Value Proposition According to Kajsa Leander, founder and Chief Marketing Officer of Boo.com, "our marketing thrust is not based on prices, it's about range and convenience. If a clothing brand is on the Boo site, it means all that brand's product line is available, not the limited range you might get at most London fashion shops58". Boo.com provided a range of 18 fashion and footwear brands including DKNY, Puma, Everlast, and Converse. They believed that the limited launch of direct online sales operations by fashion brands left room to establish a first-mover advantage and develop a market leading online fashion hypermarket.

58

Kajsa Leander, CMO of Boo.com, as cited in 'Boo.com opens its virtual doors' - Marketing Week, June 10, 1999

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6.4.3 Sources of Value & The Failure of Boo.com Their strategy was to design an innovative website with interactive graphics to appeal to both sport and fashion enthusiasts. Visitors could search items by sport, brand, colour, price or style, with the ability to rotate products and zoom-in on fabrics, stitching and colour. 3-D product images were accessible in all colours and styles, ready to stock in a shopping cart and mix-n-match on a rotating sex-specific mannequin. To transcend web shopping's impersonal stigma, the company devised a personality called Miss Boo, an animated personal shopper who guides site visitors and offers remarks (Figure 6.4). To build customer loyalty, they established the Player's Club (or Leisure Lounge in the UK), a loyalty scheme to reward frequent buyers, and developed 24-hour customer service teams in four world-wide offices. Boo.com also published content in an online style magazine, including interactive games to attract purchasers. All orders were to be delivered within 5 working days in Northern Europe and the US from distribution centres in Munich, Germany and Louisville, Kentucky.

FIGURE 6.4 - OVERVIEW OF BOO.COM'S WEBSITE

Miss Boo

However, Boo made some fundamental mistakes. First, a large portion of its potential market was unable to use boo.com's site because the website design (extensive graphics, pop-up windows, 3-D images) was too advanced for most computers and access was frustratingly slow. It required a high bandwidth Internet connection that was only available to 1% of

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European surfers and 2% in the US59. In addition, the site was poorly structured and difficult to navigate, and according to Jim McNiven, CEO of Kerb, an award winning web design company, Boo.com was a "mish-mash when it when live............ it didn't seem obvious what you were supposed to do60". In January 2000, Boo redesigned its website to make it easier to navigate, and added a version devoid of pop-up windows and graphics. The changes also gagged Miss Boo and a paper catalogue was printed for those who want to buy offline. However, the early bad experience and negative word-of-mouth scared off many online shoppers who lost confidence as Boo.com had developed a reputation as a cumbersome and slow site, even though it had become simpler and faster. There were also fulfilment and customer service problems. Although customers received the purchased items within a few days, many complained that they received the wrong items. In addition, these 'mistakes' could not be corrected easily. Customers had to demand a refund, and then re-order the items again. Obviously, once the money was refunded customers did not risk going through the frustrating and inconvenient process again. Besides these issues, there continues to remain a doubt whether the basis of Boo's value proposition was compelling enough in the first place. First of all, prices were not discounted, and secondly, an Internet alternative to real-world shopping for high fashion clothing, misses many aspects that tend to be valued by Boo.com's target audience of the young and trendy shoppers. Traditional fashion shopping provides sources of value through its social experience and entertainment, whereby people enjoy wondering around shops, trying on different styles, getting their friends' opinions, and the feeling and image associated with walking into a high fashion store. Boo's value proposition failed to deal with these issues.

6.4.4 Brand-Building Strategy Boo.com was quite successful in generating interest and creating awareness. The name was chosen on the basis that it is "simple, catchy and easy to remember and spell61" and could be trademarked in 56 countries. There was a lot of hype surrounding the start-up due to the 59

Torris, T., 'Boo.com: Fashion Site Must Overcome Own Hype' - Forrester Research, May 16, 2000 Ward, M., 'From Boo.com to Boo.gone' - BBC News Online, May 18, 2000 (news6.thdo.bbc.co.uk) 61 J. Herratti, Boo.com President for North America, as cited in 'Boo.com' - Sporting Goods Business, July 6,1999 60

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amount of money invested in the company, and the high-profile investors involved. Boo quickly burned cash on PR and advertising, spending $15 million on an advertising campaign with BMP DDB, which received a mixed response. Adverts appeared on TV, cinemas and magazines such as GQ, ESPN Magazine, Rolling Stone, Vogue, and Elle. Although they attracted traffic, customers soon discovered the site's frustrating flaws, resulting in low conversion rates, and with all the hype, negative word-of-mouth spread quickly.

6.4.5 Conclusion Boo.com failed to provide a compelling value proposition, and did not focus on target customer benefits. Instead of overhyping the convenience they offer, Internet companies must remind themselves what customers miss about in-person shopping and compensate with true added value. Boo.com also failed to address basic customer needs of a simple, easy-touse, quick-to-load site, and should have scaled back the technology to ensure as many people as possible could browse the site. Instead, they focused on advertising the brand and not the less glamorous, but vital, areas of brand-building, such as creating a positive end-to-end customer experience and making each customer contact pleasurable and memorable, and ensuring goods are available and delivered as promised. As a result, they were unable to build a critical mass of buying members needed to generate revenue to offset the steep set-up costs. Another important lesson is the need to be quick to market must be balanced against a company's readiness. Boo was very ambitious to launch in six countries simultaneously, without testing their business model. Unfortunately, this only served to increase set-up costs as well as investors' expectations - both of which accelerated Boo's downfall as things started to go wrong. As a result, Boo is 'branded' as the ultimate Internet failure. Brand building includes all aspects of brand communications, including the brand impression given by the implementation and experience. A poor brand experience on the first visit drives potential customers to click off and not return, and also leads to a lack of confidence on the part of employees (high-profile employees defected, including Dean Hawkins - finance director) and investors, throwing everyone into panic, which reflected on all aspects of the operations and eventually destroyed the business.

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6.5

CASE STUDY: CDNOW

6.5.1 Company Overview Founded in 1994, by twin brothers Jason and Matt Olim, CDnow is the leading online music store, and one of the most popular shopping sites on the Internet62. It has a customer base of 4 million people, and an average daily audience of over 800,000 people. CDnow provides access to over 500,000 music-related products and 650,000 sound samples, as well as music reviews, cover art, daily music news, features, guides to music genres, and exclusive interviews and reviews from CDnow's award-winning editorial staff. CDnow is also driving the digital distribution of music, and was the first site to offer the sale of music downloads and custom CDs. On 19th July 2000, CDnow was acquired by Bertelsmann AG.

TABLE 6.4

CDNOW - TIMELINE AND MAJOR MILESTONES

1994 August

- Site goes live - Partnership program with Geffen Records

1997 August

- Raises $10 million through private placement - Forges distribution partnership with Yahoo!

1998 February March April

-

May June July

$65.6 million IPO Launches integrated Grammy promotion Signs content distribution partnership with Rolling Stone Signs three-year, $18.5 million distribution deal with Lycos Signs three-year, $22.5 million advertising deal with MTV Enables customers to create customised CDs Launches MTV / VH1 ad campaign

1999 March May July

- Merges with N2K, former arch rival - Launches merged CDnow/N2K site - Merges with Columbia Records

2000 June July

- CDnow and Time Inc. announce marketing alliance - CDnow is acquired by Bertelsmann and will become a wholly-owned subsidiary of Bertelsmann e-Commerce Group (BeCG)

6.5.2 Value Proposition CDnow offers consumers a high degree of choice (over 500,000 music related items - ten times the selection of a conventional bricks-and-mortar music store), convenience, good prices, customisation and a wealth of information and content to help in the purchase decision. This unprecedented degree of access to music and information is the core of CDnow's value proposition, and they aim to "make every visit to the site, whether for browsing or buying, a valuable and rewarding experience"63. 62

Hoffman, D. & Novak, T., 'How to Acquire Customers on the Web' - Harvard Business Review, May-June 2000, pp.179-188 63 CDnow website (www.cdnow.com)

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6.5.3 Sources of Value - The 7Cs Framework Convenience The CDnow site is very easy-to-navigate and quick-to-load. The whole process of searching for albums or music titles to the actual purchase is simple - Figure 6.5.

FIGURE 6.5 - OVERVIEW OF CDNOW'S WEBSITE

Customisation options Simple, easy-tonavigate, and quick-to-load pages

Interesting Content

Content CDnow has invested substantially in developing strong content alliances, and has secured rights to music reviews, artists biographies, cover art, etc., to make it easier for customers to explore new music and make informed purchasing decisions.

For example, CDnow's

partnership with Rolling Stone Magazine enables customers to access thirty years of Rolling

Stone music coverage. CDnow has cultivated similar relationships with MTV, VH1 and Media College (publisher of CMJ New Music Report and CMJ New Music Monthly). By partnering with well-known content providers, CDnow has leveraged the reputation of their brands to reinforce its own.

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Customisation CDnow provides customisation on two fronts. It allows customers to purchase customised CDs and also enables customers to develop their own personalised view of the store through My CDnow. By customising the store to meets customers' needs, it gives them a sense of ownership and a compelling reason for them to return. Other features such as My CDnow's Wish List, allow customers to keep track of albums to buy in the future. Customers can even maintain an Address Book online making it easy to send music to friends and family (viral marketing promoter). Personalisation helps to strengthen loyalty and deepen customers' commitment to the brand. It also creates switching costs, for once the relationship starts to develop and customers have entered numerous addresses into their Address Book, they will be reluctant to visit another online store and enter the information again.

Community CDnow has not exploited the potential of creating a community feel, and could consider introducing customer reviews or set-up communities around different music genres such as a Jazz Club or Classical Club offering members relevant content and the option to chat with other club members.

Connectivity CDnow has linked up with broad-based highly trafficked Internet sites - search engines, Internet access providers, and key news and entertainment sites - such as AOL, Yahoo!,

Excite, and Geocities as well as more focused specialist sites. CDnow also started an affiliate programme (called the Cosmic Credit Programme) that links other websites to its site - from record labels to much smaller sites that discussed or reviewed music (supplying valuable content). In addition, CDnow developed the Fast Forward Rewards programme, an incentive programme that rewards customers and encourages them to connect back to the site. Whenever a customer makes a purchase they earn Fast Forward Reward points, which accumulate and can be spent on a variety of music-related products.

Customer Care CDnow's site can be viewed in English, German, French, Spanish, Portuguese, Italian, Dutch and Japanese. Due to International interest, CDnow hired a group of multilingual customer service representatives to handle questions. CDnow has also developed feedback teams groups of customer service representatives with deep knowledge of certain musical subject areas, allowing them to respond to detailed customer queries. 82

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Communication From the moment a customer opens an account, CDnow reaches out to its customers with personalised e-mails from Jason Olim (CEO) and e-mail newsletters informing customer of news and releases relevant to their preferences.

By keeping the brand in front of the

customer in this way, CDnow is doing everything it can to ensure that the next time that customers buy music, they buy from CDnow.

6.5.4 Brand-Building Strategy CDnow was one of the first companies to develop a multifaceted, integrated customer acquisition strategy that reflects a sophisticated understanding of the economics of an online business. CDnow's initiatives include: •

Banner Ads - CDnow buys banner ads on the sites of major Internet content and service providers including CNN Interactive and AOL, as well as more-targeted music-related sites like Billboard.



Alliances and Partnerships - They have also stuck exclusive alliances with AOL,

Yahoo!, Excite and other powerful Internet content and service providers. These alliances and partnerships have generated both traffic and brand visibility for CDnow and have locked competitors out of valuable online real estate. •

Affiliate Programme - Through the Cosmic Credit Programme, CDnow extended its distribution reach to include more than 250,000 small, music-oriented websites, covering the entire music spectrum.

According to Jason Olim, this is their "most successful

customer building programme64". It is a revenue-sharing arrangement, giving websites an inducement to join the programme and in effect turns CDnow's affiliate-marketing partners into a virtual commissioned salesforce. •

Traditional offline Media - CDnow's advertisements are targeted to some degree, including national television commercials during the Grammy's and American Music

Awards and on MTV and VH1, print advertising is music-related publications such as Rolling Stone, Spin, and Variety, and radio spots on the Howard Stern Show to build a cult following among radio listeners, and spot radio to build reach.

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Public Relations - CDnow made public relations a high priority brand-building tool. Public relations efforts helped to generate word of mouth and influence sales. The story of how CDnow was founded in a basement, by two twin brothers with little money reflects the 'American dream' and was quickly picked up.



Word-of-Mouth - As for many successful online retailers, word-of-mouth accounts for the lion's share of CDnow's customers.

It is a powerful source of acquiring new

customers at low cost. In fact, it is in this context that the large investments in advertising and partnerships make sense, as a way to fuel very lucrative word of mouth, both in the online and offline worlds.

CDnow's promotion strategies have attracted high levels of traffic, and combined with the high quality customer experience (7Cs) they are successful in engaging and retaining customers, resulting in increased conversion rates. This has contributed to a 225% increase in sales (1997: $17.4 million, 1998: $56.4 million), and to increases in the customer base of more than 30% quarter-to-quarter, with 44% of sales coming from new customers65. Their ability to learn and relate to customer's needs through customising their offering (My CDnow) encourages brand loyalty and repeat purchases, with repeat customers accounting for more than 50% of sales.

6.5.5 Other Factors that Contribute to their Brand Leadership Innovation & First-Mover Advantage CDnow started early on the Internet (1994) and has been able to maintain momentum. The company continually pushed for new distribution partnerships to widen its sphere of influence, and scaled it awareness-building efforts. It is constantly adding new functionality to the site and has been innovative in its offering - they were the first site to offer the sale of music downloads and custom CDs.

64

'CDnow Launches Next Generation of Highly Successful Cosmic Credit Program' - Press Release, April 28, 1998 - (www.cdnow.com) 65 'Pioneering in Cyberspace' - Hampel & Stefanides (www.hsny.com/cdnow.htm)

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Customer Focus & Reputation for Excellence According to Jason Olim, "your brand is not just what you say - it's what you do66", and the company's goes to great lengths to ensure that its activities reinforce this view and it fulfils its promises. The company sends an automated order confirmation note via e-mail as soon as the order has been placed. This gives the customer the impression that the order is being handled quickly. They also provide the customer with an order number and customer support contact information should they have questions. CDnow has developed a relationship with Valley Records, a record distributor that handles the majority of CDnow's fulfilment logistics, to ensure quick delivery to customers.

6.5.6 Conclusion CDnow identified a market opportunity early and moved quickly to capitalise on the potential it saw. It was able to create a strong value proposition and high quality customer experience. According to Jason Olim, "the most important customer loyalty tool is a great store67" and CDnow has gone to great lengths to provide this, and ensure that it exploits its early-mover advantage and keeps ahead of competition. It has developed a detailed understanding of its customers' needs that has enabled the company to create better products and more effective marketing campaigns. The development of an extensive affiliate network, and innovative, well-targeted marketing programmes both online and offline have driven large volumes of traffic to the site and have exposed the brand to millions of potential customers. This, combined with the high impact customer experience created - from how CDnow has personalised its product offering to its capable customer service team - have been instrumental in building a reputation for excellence that is a core factor of a successful Internet brand.

66

Jason Olim, CEO of CDnow, as cited in Carpenter, P, "eBrands - Building an Internet Business at Breakneck Speed", (Boston: Harvard Business School Press), 2000 p.89 67 Jason Olim, CEO of CDnow, as cited in Carpenter, P, "eBrands - Building an Internet Business at Breakneck Speed", (Boston: Harvard Business School Press), 2000 p.75

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6.6

CASE STUDY: EBAY

6.6.1 Company Overview eBay is the world's largest person-to-person online trading community and is one of the few Internet companies that is profitable. eBay effectively created a new business model never before possible - efficient one-to-one trading in an auction format. Individuals use eBay to buy and sell items in more than 4,300 categories, from collectibles and antiques to electronics and toys. Sellers pay a nominal fee for placing an item up for sale, and eBay receives a transaction fee that ranges from 1.25% to 5% of the final sale price on any item sold. The buyer and the seller work out the logistics of the transport (e.g. shipping, payment) between themselves, and eBay never takes possession of the item being sold, or the payment for the item - removing the need for inventory, transportation and other overhead costs. Since its launch in September 1995, the eBay community has grown to include more than 10 million registered users, with the number of unique daily visitors setting a record of 1.782 million in January 200068. There are over half a million new auctions, and 450,000 new items joining the "for sale" list every 24 hours69.

6.6.2 Value Proposition eBay offers consumers an efficient, 24 hour a day, global trading place for buying and selling personal items in an entertaining auction format. This is a new market - the closest thing in the offline world are trading forums such as classified ads, collectable shows, garage sales, flea markets and auctions. People perceive the auction format to offer better prices, and eBay provides added value through its convenience, extensive selection and geographical reach, with emphasis being placed on its unique community feel and culture. According to Meg Whitman, CEO of eBay, "at its core, eBay is not about auctions. Auctions are an enabler. Auctions make it fun. Auctions represent a platform. But eBay is really about a unique sense of community that eBay users are creating for themselves70"

68

Media Metrix, as cited in 'eBay - Company Overview' - eBay website (www.ebay.com) 'eBay - Company Overview' - eBay website (www.ebay.com) 70 'Meg Whitman at eBay Inc. (A)' - A Harvard Business School Case Study, 1st October 1999 69

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TABLE 6.5

EBAY -

TIMELINE AND MAJOR MILESTONES

1995 September

- eBay goes live

1998 January

- eBay exceeds 21 million online auction bids and completes more than 5 million auctions since its inception in 1995 - eBay and First Auction sign a partnership agreement - Launches "My eBay!" to customise the online auction experience - eBay acquires Jump Inc. and its online trading site (Up4Sale) - eBay IPOed raising $58 million - eBay launches 'About Me' feature, allowing users to create personal homepages

May July September October 1999 January February March April May June July August October November December 2000 February March May June July

- Compaq Computer Corporation and eBay form a strategic U.S. co-marketing relationship. - eBay expands strategic relationship with Netscape - America Online and eBay announce strategic marketing alliance - eBay acquires Butterfield & Butterfield; and raises $700 million - eBay acquires Kruse International - eBay acquires alando.de - Germany's leading online person-to-person trading site - eBay introduces eBay Magazine in collaboration with Krause Publications, and two books -, The Official eBay Guide to Buying, Selling, and Collecting Just About Anything and eBay for Dummies. - eBay teams up with Carclub.com to provide automotive service for eBay Users - eBay and AOL launch co-branded site - eBay goes wireless with Palm VII connected organiser - eBay goes live in Australia - eBay launches local websites in Baltimore & Washington DC, Boston, Las Vegas, Providence, Nashville, Norfolk & Virginia Beach, Seattle & Tacoma, Milwaukee, Dallas & Fort Worth, and Salt Lake City - eBay acquires Blackthorne Software -

GO.com and eBay announce multi-year strategic marketing agreement eBay and NEC form a joint venture in Japan eBay launches in Japan eBay and Autotrader.com Create auction-style marketplace for used cars eBay launches Business Exchange eBay and Keen.com form exclusive three-year relationship eBay and Wells Fargo launch electronic cheque as an alternative to credit card payments and traditional cheques - eBay and Ultimatebid.Com form alliance

6.6.3 Sources of Value - The 7Cs Framework According to Meg Whitman, "the first brand-building strategy that we have is to have a great customer experience. Still the vast majority of our new users come from word-of-mouth. And you only get word-of-mouth if you have a great customer experience. So brand-building job No. 1 is have a great customer experience71". Unlike the previous case studies discussed, the eBay customer experience is based on how their customers deal with each other, as they rarely deal directly with the company. This raises challenges in how to control and influence the customer experience. Since eBay cannot control how one person treats another, they try to influence customer behaviour by encouraging them to adopt certain values, and in terms of the '7Cs', emphasis is placed on community development and customer care. 71

Interview with Meg Whitman by Linda Himelstein as cited in 'What's Behind the Boom at eBay' - Business Week, 21st May 1999 (www.businessweek.com)

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Convenience The site enables sellers to list items for sale and buyers to bid on items of interest using eBay's fully automated, topically arranged, easy-to-use online service (Figure 6.6). eBay has also expanded to accommodate access through wireless devices for added convenience.

FIGURE 6.6 - OVERVIEW OF EBAY'S WEBSITE

Customisation Simple, categorically arranged, and easyto-use site allowing multiple options for browsing Added convenience and sense of community through option of focusing on local area

Unlike most websites that simply post content, eBay's site has to process thousands of live bids simultaneously, which is much more demanding on the system, increasing the risk of outages. eBay had a 'wake up call' when the website crashed for 8 hours, angering hundreds of thousands of eBay users, and since, they have continually invested in system capacity. Nevertheless, they continue to face challenges in scaling-up fast enough to accommodate their rapid growth. Content Content is primarily user generated through the items listed for sale. This contributes to the community feel, and adds to the experience and the discovery of the auction process. Other content includes the banner ads, which are narrowly targeted on relevant subjects such shipping and transport companies and payment methods to aid users.

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Customisation eBay provides My eBay which allows users to customise the interface, and is considered by many users as one of the best features on the website. They also provide the ability for users to create their own home page free-of-charge through the About Me feature (which promotes a viral effect). Community eBay attributes much of its success to a strong sense of community among its users. For many 'eBayers' - as eBay users refer to themselves - eBay represents more than just a place to buy and sell goods. It is a place where people can meet with similar interests, discuss topics they care about, and share information. To encourage this sense of community, eBay offers its users category-specific chat rooms, bulletin boards, a monthly newsletter, e-mail, a "giving-board" for charitable donations to user-identified causes. In addition, the community spirit and personal relationships also transcend the online experience, and there are several reports of eBay users vacationing together, working together and helping each other offline. eBay's community has a distinct culture based on trust, respect, autonomy, empowerment and equality. Whitman describes eBay's community culture as a site "of the people, by the people, for the people". However, the culture has come under strain due to the company's rapid growth from a small community into a "big city". Recent initiatives such as the development of local websites in major US cities (e.g. eBay Boston, eBay Salt Lake City) have helped them restore that community feel, while adding value by providing users' with the ability to source items located close-by and browse through items of local interest. After a sale, each user is encouraged to submit feedback through eBay's 'Feedback Forum', which is then added to the partner's trading profile, which is posted to the site. This has created a self-regulating mechanism that encourages good behaviour, and in doing so, has enabled eBay to foster a strong sense of community on its site. This sense of community is their key differentiating factor and has encouraged greater loyalty and repeat usage.

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BUILDING SUCCESSFUL BRANDS ON THE INTERNET

Connectivity eBay has created an affiliate network, links to high traffic sites, banner ads and links to supporting services such as payment options and transport companies to help customers coordinate the logistics. eBay also engaged in marketing partnerships, the largest of which was with AOL, but they have other partnerships with over 150 websites of varying scales. They also introduced a PowerSellers Programme (loyalty scheme) which gives special benefits and privileges to heavy users. Customer Care eBay controls neither end of the transaction, and the users' experience on eBay is more driven by the seller or buyer than by eBay itself. As such, eBay has invested in customer care and support to ensure people conduct safe transactions. eBay's approach to customer care has evolved over time. During the first two years, eBay employed a "remote" customer support model, in which the company hired active, knowledgeable, and respected members of its own user community to serve as customer support representatives. These people worked from their homes, answering e-mails and responding to questions posted on the site's bulletin boards. By using its own enthusiastic, geographically dispersed users as customer support representatives, eBay was able to cost-effectively offer 24x7 customer support early on. This also reinforced the company's respect for, and willingness to empower, its user community. This was later expanded to include customer support representatives who worked out of eBay's headquarters, and the introduction of two specialised customer support groups - the Community Watch group, which was dedicated to monitoring the site for illegal and infringing activities, and the Safe Harbour group, which was dedicated to investigating misuses of the system (e.g. fraud, shill bidding) and helping to resolve user-to-user conflicts. Customer support activities were constantly upgraded and expanded as the business developed. Communication eBay maintains close communication with its members. They encourage members to take active role in the site and to provide feedback and advise them of and problems through the Feedback Forum.

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6.6.4 Brand-Building Strategy The majority of eBay's users have been attracted through word-of-mouth, as a result of the high quality experience it provides.

Early on, eBay identified that 20% of the users

represented 80% of the volume of the site (80/20 rule). Based on this, they decided to target their marketing efforts on these heavy users, who tended to be serious collectors. As a result, eBay decided that it would not enter into major portal advertising deals in the short term, and instead focus on grassroots marketing initiatives through print advertising in vertical publications (e.g. Mary Beth's Beanie World, Doll Collector) and appearance in trade shows. They appeared at over 90 collector trade shows and ran 14 different adverts in 90 vertical publications during 1998. eBay intends to use these same marketing levers as they expand across different categories of merchandise as well as expand internationally. In 1998, they spent $12.3 million in advertising, representing about 40% of revenues, and maintained the same ratio for 1999. eBay has since expanded its promotion efforts and engaged in marketing partnerships, the largest of which was with AOL, but they have other partnerships with over 150 websites of varying scales. The AOL partnership was one of the largest strategic partnerships on the Internet - a four-year, $75 million joint marketing alliance and development deal, whereby eBay is the exclusive auction site featured on AOL and will jointly develop auction sites for AOL's flagship online service and all AOL's other properties. With the acquisition of Butterfield & Butterfield (one of the world's oldest and most prestigious auction houses) and Kruse International (auctioneer of collector automobiles) in 1999, eBay transformed from a pure online play into a 'clicks-and-mortar' company. These acquisitions further expanded their appeal to a wider market (those interested in higher priced items) while providing added revenue due to higher margins. Recent promotional initiatives include its new publication, eBay Magazine, and two books, The Official eBay Guide to Buying, Selling, and Collecting Just About Anything and eBay for Dummies. These new publications appeal to the collecting spirit, provide a wealth of information about the 'ins and outs' of trading on eBay, and highlight opportunities created by e-commerce. Through this combination of its advertising efforts and targeted promotions, eBay has been able to attract a large customer base, and facilitate the spread of positive wordof-mouth.

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eBay has continually added new features and services to its offering in order to provide added value to build relationships and facilitate customer 'lock-in'. This is achieved by listening to their community (learning) and developing new improved products and services (relating), such as the Feedback Form, the Personal Shopper and the eBay Life Newsletter, which were all ideas of eBay users. However, eBay have a policy of not looking at users pattern of buying habits for the purpose of generating products on offer for customers. This has become part of the eBay culture, and according to research carried out by eBay, is one of the factors that users value most as they are not provided with junk mail and intrusive offers in a aggressive way. eBay prefers the opt-in model whereby users have the option to choose such services if they were interested.

6.6.5 Conclusion eBay's compelling value proposition, their ability to create a new market using Internet technology, and their first-mover advantage, have been key factors that have contributed to the success of the brand, however, their ability to cultivate a distinct 'sense of community' has been the defining characteristic which differentiates them from other online auctions. As a result, eBay attracts a broader selection of buyers, which in turn attracts more sellers - the ultimate network effect - contributing to its strong lead and competitive advantage. Their focus on heavy users and targeted promotions, have been instrumental in building a 'quality' customer base, which has established eBay above other online auction communities. eBay has also faced difficult challenges in scaling the organisation fast enough, as they could not opt for a 'go slow' strategy. The need to continually invest in ensuring adequate capacity and improving the product offering is essential in order to keep ahead of competitors, and according to Meg Whitman, "the devil in so much of this is in the detail. And while we have to move very, very fast, I think you are not well served by moving incredibly rapidly and not doing things well72".

72

Interview with Meg Whitman by Linda Himelstein as cited in 'What's Behind the Boom at eBay' - Business Week, 21st May 1999 (www.businessweek.com)

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6.7

CASE STUDY: GAP.COM

6.7.1 Company Overview Gap opened its first store in San Francisco in 1969, and today it is the 29th most valuable brand in the world73. The Gap offers a balance of modern and seasonal styles of clothing, from jeans and T-shirts to khakis and jackets. Its reach extends across more than 1,800 stores in the US, Canada, UK, Germany and Japan. This success is largely due to their simple formula - "to deliver style, service and value to everyone74". In late 1997, Gap started selling items online - an early convert to the then-revolutionary idea of clothes retailing on the Internet. Currently, online sales are only available to US customers, and are still relatively small compared to Gap's $9 billion in annual sales, however, the growth prospects are enormous. Gap's online sales tripled in 1998 alone, and analysts estimate that sales in 1999 amounted to $50 - $100 million, up from $20 million in 199875. Gap.com is an example of successful crossover marketing, and provides useful insight into how traditional brands can leverage their strength online.

TABLE 6.6 1969 1986 1989 1997 1998

-

1999

-

GAP & GAP.COM - TIMELINE AND MAJOR MILESTONES The first Gap store opens in San Francisco, California GapKids opens its first store BabyGap is born Gap opens its online store at www.gap.com to make shopping even easier for US customers GapKids and BabyGap launch their online stores at www.gapkids.com and www.babygap.com. Gap Inc. surpasses $9 billion in net sales and increase earnings by 54% over previous year. America Online (AOL) and Gap Inc. announce multi-year partnership.

6.7.2 Value Proposition Gap's simple, standard styles are well suited to online shopping, and Gap online provides access to the full range of items at Gap, GapKids, and BabyGap, from shirts to accessories and hard-to-find sizes. In addition, Gap online exploits the accessibility and convenience of the Internet, to provide customers with greater convenience and options. According to Jeanne Jackson, head of Gap Online, "this is about being clicks-and-mortar, letting customers access the Gap brands, whether in the store or online76".

73

Interbrand (www.interbrand.com) - see Appendix A Gap, Inc.'s website (www.gapinc.com/about_us.htm) 75 Jeanne Jackson, as cited in Lee, L. 'Clicks and Mortar at Gap.com' - Business Week, October 8, 1999 76 Jeanne Jackson, as cited in Lee, L. 'Clicks and Mortar at Gap.com' - Business Week, October 8, 1999 74

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6.7.3 Sources of Value - The 7Cs Framework In terms of the 7Cs framework, Gap Online primarily focuses on Convenience, Content, and Customer Care. Unlike Barnesandnoble.com, the extensive integration of Gap's online and offline activities are clearly evident. Visiting the gap.com store one immediately notices the consistency between the online and retail stores, from the blue and white colour scheme to the easy-toshop format - making visual references to its offline roots. Michael McCadden, Executive Vice President of Global Marketing, describes the company's brand personality as "direct and straightforward........very easy, very efficient"77. This personality is reinforced online through the simple structure and layout, making it convenient, and easy-to-use. The site also offers sharp graphics, but provides customers with the option of viewing text-only, making navigation even faster.

FIGURE 6.7 - OVERVIEW OF GAP'S WEBSITE

Immediate customer recognition The look, feel and design of the site is consistent with the bricks-and-mortar stores, reinforcing its brand identity.

Simple, easy-to-use site with option to view text-only (no graphics) to allow quick loading

77

Hill, D., 'Mind the Gap', The Observer, April 18, 1998

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Gap.com's content consists of detailed information on its full range of products, allowing shoppers to contrast different cuts and styles. The site's virtual style feature also allows customers to mix-and-match combinations of clothing, and customers can view their latest TV adverts for buying inspiration, as well as sample all of the latest shades of fingernail polish on a virtual hand, which would not be possible in the store. Unlike the case of Boo.com, Gap's simple, standard styles are well suited to online clothes shopping, and goods bought online get returned at the same rate as store purchases - as most Gap online shoppers have a good idea of how Gap clothes fit. In order to integrate its offline and online operations and logistics, Gap made a decision to charge sales tax on online sales. By doing so, customers can return goods purchased online to their neighbourhood store, without causing complications. This level of customer care is an important factor in making customers feel more comfortable with online purchasing. In addition, Gap.com allows customers to track the status of online purchases and provides contact information on the nearest store. Gap does not provide any community features on its site. However, once customers are registered online, Gap communicates with customers through customised e-mails, twice a month, promoting its specials and including links directly to items on Gap's website. Gap.com also provides a Gift Central feature which offers gift suggestion from Gap, GapKids, and BabyGap, and customers can register to get e-mail reminders of upcoming holidays and birthdays. The Gap site connects to other Gap online stores including GapKids and BabyGap. Gap has also developed an affiliate programme, and had recently established marketing deals with

AOL and CDnow.

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6.7.4 Brand-Building Strategy - Extensive Integration Gap.com has been able to piggy-back on The Gap's offline advertisements (in TV, Magazines, billboards, etc.) that also promote the online store.

In addition, it is fully

leveraging its offline presence to build awareness, by displaying the URL (www.gap.com) in store windows with the slogan "surf.shop.ship", on counter cards, on shopping bags and even on the cash register, which displays "Shop online at www.gap.com" on the display screens between transactions. Store clerks are also trained to look for products online for their customers if the store does not have them in stock, or to refer shoppers to Gap's website. In certain high traffic Gap and GapKids stores, the retailer has installed "Web lounges" that lure buyers with comfortable couches and terminals hooked up to Gap.com.

To convert walk-in shoppers to

cybershoppers, Gap has held in-store campaigns to get customers to submit their e-mail addresses, by offering a 10% discount and free shipping on their first online purchase. These efforts doubled the size of Gap's e-mail database, providing a useful way to directly reach customers. Most of Gap's online traffic is generated by leveraging its physical presence, however, Gap has also supplemented this with online promotions: •

In August 1999, Gap secured a 3-year commerce and marketing agreement with AOL, that gives Gap more visibility on the Internet by linking to the world's largest online shopping destination: [email protected] marketplace.



Gap.com has links with CDnow to cross promote websites. The idea emerged as Gap was flooded with e-mails form customers asking how they could buy a recording of the music played in Gap TV commercials.



Gap.com has also created an affiliate programme encouraging sites to establish links to gap.com in return for a 5% commission on every sale referred through the site.



They offer Online discounts and promotions such as the ShopCard, whereby for every $100 a customer spends at Gap Online, they send the customer a $20 Gap ShopCard, which can be used towards future purchases, either online or in stores.

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6.7.5 Conclusion Gap.com is an example of successful crossover marketing. With their brand awareness and network of retail outlets, Gap had a significant advantage over pure online players in attracting customers and building critical mass. Pure online players have to invest heavily in logistics, whereas established companies, such as Gap, have already established the back-end operations and can use them as the cornerstone of their online business. The Internet, on the other hand, provides existing customers with added value through the convenience of purchasing online, and can also provide access to different customer segments who may not usually buy the products at all - thereby increasing the company's reach. By aggressively marketing both the stores and the website, and allowing each to leverage the strengths of the other, Gap has been able to significantly strengthen their brand-customer relationship, while reaping the benefits of low customer acquisition costs and extended reach. A key factor has been Gap's consistency and ability to deliver the same level of service quality that is expected from the brand, thereby reinforcing its brand identity. This type of seamless integration and symbiotic relationship is critical in building successful 'clicks-and-mortar' brands.

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6.8

CASE STUDY: YAHOO!

6.8.1 Company Overview In April 1994, Yahoo! was founded by David Filo and Jerry Yang, two Ph.D students at Stanford University, who started an online guide as a way to keep track of their personal interests on the Internet. The concept exploded (through word-of-mouth) and in less than six months, the site was receiving 1 million hits per day. Yahoo! has since morphed from an ordinary search service into a global Internet communications, commerce and media company that offers a comprehensive branded network of services and information to more than 145 million individuals each month world-wide, and is one of the few Internet companies to turn a profit early in the development of the Internet. As the first online navigational guide to the web, Yahoo! is a leading guide in terms of traffic, advertising, household and business user reach. Yahoo! is one of the most recognised brands on the Internet and is the 53rd most valuable brand in the world78. The company's global web network includes 23 world properties outside the US.

6.8.2 Value Proposition At the core of Yahoo!'s value proposition, lies the directory - a hand tailored and easy-to-use guide to the Internet that becomes more useful each day as Internet penetration, the amount of information, and the number of websites continues to explode.

According to Timothy

Koogle, CEO of Yahoo!, "We've set out to make Yahoo! the only place anyone needs to go to get connected to anything. There's nothing in the real world to compare to that79". As such, Yahoo! offers a range of supporting services that add value, from e-mail services to stock quotes and much more, all in a single location.

78 79

Interbrand (www.interbrand.com) - see Appendix A 'Yahoo! - The Company, The Strategy, The Stock' - Business Week, September 7, 1998 (www.businessweek.com)

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TABLE 6.7

YAHOO! - TIMELINE AND MAJOR MILESTONES

1994 April - Site goes live September - Traffic reaches 1 million hits per day 1995 April

- Receives $1 million in venture capital funding from Sequoia Capital

1996 April July September October

-

$33.8 million IPO (2,600,000 shares at $13.00 per share) Launches My Yahoo! (allowing customisation of site) Launches Yahoo! UK & Ireland Launches Yahoo! France and Yahoo! Germany

1997 January February October October October December

-

Launches Yahoo! Chat Launches Yahoo! Classifieds Secures distribution agreement with Compaq Acquires Four11 Secures Distribution agreement with Gateway Launches Yahoo! Sports

1998 April May June September October November

-

Launches Yahoo! Computers Cross-marketing with AT&T Acquires Viaweb; Launches Yahoo! Real Estate Opens Yahoo! Auctions Acquires Yoyodyne Launches Yahoo! Shopping (offering more than 2 million products)

1999 January January January March April June July August September

-

Secures distribution agreement with Hewlett-Packard Signs distribution agreement with IBM Acquires Geocities Secures distribution on PagerNet pagers Acquires Broadcast.com; Launches Yahoo! Radio Acquires Online Anywhere Launches Yahoo! Resumes Introduces free e-greetings, and unveils Yahoo! Digital Introduces Bill Payment services

2000 March

- Yahoo! forms agreements with Palm Inc., to provide web-based services to PalmTM handheld computers - Yahoo! unveils Yahoo! Finance Vision - Yahoo! acquires Arthas.com allowing them to offer person-person payment solutions - Yahoo! Launches Business-to-Business Marketplace - Yahoo! launches the next wave of Yahoo! Everywhere service for consumers with Internet-ready mobile phones and wireless devices. - Yahoo! acquires eGroups - Yahoo! Shopping launches personalised shopping service

March March March May June July

6.8.3 Sources of Value - The 7Cs Framework Convenience Central to Yahoo!'s success, is the way it has structured and displayed information. Their goal is not to list everything under the sun, but instead to be selective and to display the best the web has to offer in a hierarchical framework that makes sense to customers. They have kept the design of the site simple and clean to appeal to customers and avoid slow-to-load graphics (Figure 6.8). More recently, Yahoo! extended its convenience through its Yahoo! Everywhere service, to allow access, regardless of platform (i.e. mobiles, TVs, Palm computers).

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FIGURE 6.8 - OVERVIEW OF YAHOO!'S WEBSITE

Customisation options Simple, well structured, easy-touse, and quick-toload webpages

Important contact point to search information on any subject

Content Yahoo! has pursued a broad range of deals with content and commerce companies. These have helped Yahoo! become the place to track down a broad range of valuable information and resources, ranging from daily news and weather reports to road maps and books, and has been at the heart of Yahoo!'s growth and development. They have formed multiple alliances and partnerships with leading online companies such as Amazon.com and CDnow. Their thrust has been to provide valuable content to customers, while providing partners access to a large customer base. This creates a win-win situation as its satisfies Yahoo!, the partner, and more importantly, the end-user.

Customisation My Yahoo! allows surfers to customise their view of Yahoo! and pick favourite topics, from stocks and sports results to weather and air fares, and is similar to a custom tailored newspaper (Figure 6.9). By tailoring the information to users' preferences, Yahoo! has increased customer loyalty and retention rates.

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FIGURE 6.9 - OVERVIEW OF MY YAHOO!

Instant name recognition Customer's preferred categories of news and information

Customisation is a 'sticky' application. It keeps customers on the site for longer periods, and encourages them to return frequently.

Community Yahoo! has developed customisable web communities called Yahoo! Clubs, where groups of people with shared interests can communicate through chat, message boards, and e-mail. In 1999, Yahoo! acquired GeoCities, (one of the largest online communities) which provides easy-to-use and innovative tools to allow users to publish content on the site. Yahoo!'s recent acquisition of eGroups (an e-mail group communication service) will provide consumers with powerful new ways of communicating one-to-one, one-to-many, and many-to-many.

Connectivity Connectivity is Yahoo!'s core product, and the nature of the navigation business, and is driving Yahoo!'s multiple partnerships and alliances, to provide its customer base with access to useful links and content. In addition, Yahoo! has also implemented campaigns to persuade users to bookmark the site, or to make it their home page.

Customer Care Yahoo! responds to customer inquiries via e-mail, fax, telephone and even traditional mail, and plans to incorporate other features such as online chat to facilitate communications. Yahoo! spends more on customer support than most companies, reinforcing the brandcustomer relationship, and contributing to their reputation as a quality service provider. 101

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Communication By positioning itself as a site that users frequent often, and through communications via email, Yahoo! maintains close contact with customers. Yahoo! also encourages customers to e-mail ideas and feedback.

6.8.4 Brand-Building Strategy Yahoo! is a marketing machine. It is often highly praised for its brand-building ability and promotion strategies through the use of traditional (offline) media and guerrilla marketing techniques to build awareness, and according to Intelliquest80, 82% of Internet users and 23% of people intending to go online, recognise the name Yahoo!. Yahoo!'s brand-building success starts with its name, and its implications of a good time. Given the unease with which the average consumer approaches technology, Yahoo! avoided characterising itself as a technology-oriented company, and the company has always communicated the utility of its service in a way that reinforces other core brand attributes - a sense of irreverence, an approachable nature, and an inherent friendliness. While Internet companies were targeting existing Internet users through the use of online promotion methods, Yahoo! extended beyond this to use traditional offline media. At the time this was considered a breakthrough, and it formed a critical link in Yahoo!'s brandbuilding strategy. Their strategy was to target "near surfers" - people who are not yet online but are likely to use the Internet in the near future. These near surfers represented (and still do) a large and fast growing group and, therefore, by building a recognised brand name, Yahoo! would be one of the first sites that they visited. This was especially important, as experience surfers tend to be loyal to their search engine. As a result, Yahoo! aggressively promoted the site through public relations, TV commercials and radio spots during drive time. In 1996, they hired Black Rocket to create a brand awareness campaign that became very successful through the development of the tag line "Do You Yahoo!?", which conveyed the brand's irreverent personality.

80

'Web Survey Shows Yahoo! Tops', Intelliquest, (www.intelliquest.com)

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In addition, Yahoo! adopted 'guerrilla marketing' techniques - with its name being plastered on everything, from the Zamboni ice-shaving machine of the San Jose Sharks (Ice Hockey Team) to over 120 products, including backpacks, T-shirts, organisers, breath mints, parachutes, snowboards, sailboats, and yo-yos, as well as TV shows (Ally McBeal, ER) and Hollywood movies. They even have a barter deal with the San Francisco 49ers, which has fans screaming Yahoo! to cheer their team as the Yahoo!'s logo flashes across the football stadium screen. They also teamed up with publisher Ziff-Davis Co. to create Yahoo! Internet Life, a monthly magazine guide to what's new on the web and it has co-branded products, services and contests with well known brands such as Ben & Jerry's, Visa and MCI. Yahoo! has paid little for this exposure, which has been instrumental in establishing Yahoo! as a household name. Although this seems like a shotgun approach, it is in fact a carefully orchestrated campaign that requires each branding opportunity to meet one strict test - it must reinforce the image of the company as 'a service that is fun, a little wacky and inviting'. Once customers access the site, customers quickly discover its value and through a high quality experience (7Cs), Yahoo! has managed to cultivate high brand loyalty. According to a recent study, 92% of Yahoo! users rate the service as "excellent" or "very good" which is significantly higher than those of other sites, and 76% turned to Yahoo! before visiting another search engine or navigational site. In addition, the research shows that 73% of Yahoo! users bookmark the service - higher than all other services81. According to Karen Edwards, VP-Brand Marketing, Yahoo's ability to quickly pick up on users interests has been a key factor contributing to their success, stating that "if we wait to hear about it in the news, it's too late. We need to be one step ahead in order to have a better service than our competition82". Their innovation, new services and customised features highlight their ability to relate to customers' needs.

81

'NPD Findings Show Yahoo! Ranked Highest in User Opinion' - Yahoo! Press Release, August 26, 1997 (www.yahoo.com) 82 'Yahoo! Forges Strong Brand While Adding Meaty Content' - Advertising Age, May 3, 1999, p. s4

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6.8.5 Other Factors that Contribute to their Brand Leadership Innovation & First-Mover Advantage Yahoo! was first to market with a detailed search engine, first to go public, first to turn around an annual profit, and first to go mainstream by advertising its name using traditional media. To maintain its lead, Yahoo! has invested relentlessly in new services and marketing programmes, that have set it apart from the pack. In addition, they have carried out extensive partnering, alliances and acquisitions to provide added value services to their customers, while attracting new customers.

Customer Focus & Reputation for Excellence Yahoo! has kept close tabs on the evolution of the market and the interests of its customers, and has cultivated a reputation for excellence, from its convenient and logical structure and display of information, to its simple design, its excellent customer service, its choice of partners, and its openness (for example, if a user cannot find what it is searching for, Yahoo! points them to its competitors by including links to AltaVista, HotBot, GoTo.com, and other search engines at the bottom of its search results page).

6.8.6 Conclusion Yahoo! is one of the most successful brands on the Internet. As the first online navigational guide to the web, Yahoo! has benefited from a first-mover advantage. They have maintained that lead through the creation of a high quality end-to-end customer experience. This has been achieved through their relentless investment into new services and extensive partnerships and alliances with leading brands. These relationships have provided end-users with added-value, while also associating Yahoo! with well known brands. Yahoo!'s intense focus on customer's needs and high quality online experience has been instrumental in cultivating a reputation for excellence. In addition, their innovative promotional and guerrilla marketing techniques, have created a distinct brand identity that differentiates the brand and appeals to its target market. As a result of all these factors, Yahoo! has built a strong brand, with a large customer base and high levels of customer loyalty. The essence of Yahoo!'s brand-building strategy is highlighted in a simple statement made by Karen Edwards, VPBrand Marketing of Yahoo!, "we've really focused our marketing efforts on attracting new users and providing an experience that makes them stay83". 83

'Yahoo! Forges Strong Brand While Adding Meaty Content' - Advertising Age, May 3, 1999, p. s4

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CHAPTER 7

CONCLUSION

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7.1

CONCLUSION & DISCUSSION OF KEY FINDINGS

This dissertation set out to explore how the Internet is changing the brand-building environment, in order to identify the new sources of value, the new brand-building tools and strategies, and to outline the key factors that contribute to the development of a successful online brand. With power shifting to customers, the success of an online brand is largely determined by customer choice. The repeated choice of a certain brand by customers and business partners generates the transactions and repeat business that counterbalances the costs of customer acquisition and infrastructure. Repeat transactions provide the basis for a relationship that, when properly cultivated, creates value for both the company and its customers.

This

relationship is the basis for the customer loyalty that creates a successful online brand. The companies that are successfully building relationships and fostering brand loyalty are those that recognise that their brand's perceived value hinges on the total end-to-end customer experience, from the promises made in the value proposition, to its delivery to the customer. It is about enticing customers, gaining their trust, and making the experience so satisfying that they are confident in their choice and will return again, and will tell others about it. It aims to create "apostles", instead of "terrorists". As such, brand-building on the Internet extends beyond the traditional focus of positioning, advertising, promotions, catchy logos and slogans, to creating a business that can deliver complete, and completely satisfying, experiences. As outlined in Chapter 5, the tools for building an online brand include the 7Cs Framework (Convenience, Content, Customisation, Community, Connectivity, Customer Care and Communication), and the Interactive Brand-Building Model (Attract, Engage, Retain, Learn, and Relate). These frameworks highlight the key components and sources of addedvalue for developing a high quality experience, and the process of building a customer base and nurturing brand loyalty. The case studies provided a useful and practical insight into the application of these tools.

As such, the next section concludes the dissertation with a

discussion of the key factors that contribute to building a successful online brand.

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7.1.1 KEY FACTORS THAT CONTRIBUTE TO BUILDING A SUCCESSFUL ONLINE BRAND There is no one-size-fits-all solution for building a successful brand on the Internet, however, the extensive research and in-depth case studies provided in this dissertation indicate certain common underlying characteristics which can be summarised as follows: •

A Compelling Value Proposition Successful online brands are exploiting every capability offered by the Internet to deliver compelling value propositions that appeal to customers, by offering more value than attainable through traditional 'bricks-and-mortar' establishments.

They are providing

greater convenience (24x7), lower prices, wider selections, and access to more information on the products or services being provided, and enhancing this with layers of added-value through the '7Cs' - Convenience, Content, Customisation, Community, Connectivity, Customer Care and Communication. Successful brands recognise that the value proposition must more than compensate for the loss of in-person contact. •

A High Quality Online Experience Strong Internet brands are those that create a high quality engaging online customer experience.

The 7Cs framework allows companies to deliver a tangible customer

experience. Successful online brands meet the demands inherent in each of the 7C categories, by ingraining convenience and making the site easy-to-use, quick-to-load and easy-to-navigate, delivering compelling content, customising the experience, developing a community feel, making connectivity easy, integrating customer care, and establishing two-way communication. By placing emphasis on different 'Cs', they are differentiating their experience from those of competitors. A well executed customer experience that satisfies customers, results in higher brand equity. •

A Reputation for Excellence (Delivering on their e-Promises) Fulfilment and delivering on e-promises is the acid test of online brands. The successful brands are those who are investing heavily in logistics, distribution centres, and customer care to ensure a completely satisfying end-to-end customer experience. In doing so, they are cultivating a reputation for excellence, which builds confidence and trust that not only entices customers to do repeat business with the company, but leads them to spread positive word-of-mouth, attracting other customers to the site. 107

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Strong Communications Programme & Efficient Customer Acquisition Strategy The key Internet brands have made major commitments to building awareness and have developed multifaceted, integrated customer acquisition strategies, ranging from online methods to traditional offline media. They are targeting their promotions to attract quality customers and to keep customer acquisition costs down. Quality customers who are heavy users of the brand are important as they not only offset the cost of customer acquisition, but also provide added value to the brand community. Properly orchestrated 'guerrilla marketing' ploys can also be effective in building awareness and reinforcing brand image.



Unique Positioning Concept & Distinct Brand Image Strong brands are developing unique positioning concepts, to distinguish themselves from competitors. Yahoo!'s success can be largely attributed to its unique positioning strategy and distinct image that appeals to its target market. By distinguishing their offering and focusing on unique sources of value-added, brands are harder for competitors to emulate. In addition, these companies must have an inherent understanding of their brand identity and core values, to maintain consistency, as well as determine how far the brand can be meaningfully stretched to other products and market segments, before it fractures.



Strong Partnerships and Strategic Alliances Rather than doing everything on their own, leading brands have focused on building strong partnerships and alliances, particularly to secure content and widen reach to new customer segments and niches. As a result, these companies are creating even stronger value propositions, offering customers the best in quality, variety, content, and convenience. Alliances and partnerships play an important role in achieving speed and momentum, and by partnering with well-known brands, a company can leverage the partner's brand and reputation to reinforce its own. Alliances with leading portals and popular sites is important to generate traffic and brand visibility, and exclusive alliances can lock out competitors from valuable content or online real estate. The most successful partnerships are symbiotic matches, whereby each party benefits from the other's expertise or skills, while ultimately benefiting the end-customers.

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Intense Customer Focus Leading online brands have an intense customer focus, and develop a detailed understanding of their customers' needs. These brands are accumulating knowledge about customers, through past transactions and solicited input, and by focusing on customer needs, are leveraging this customer knowledge (learning) to nurture relationships (relate), by providing better services, customisation and customer care. Customer focus builds trust and credibility that is central to developing a strong brand-customer relationship.



First-Mover & Early-Mover Advantage Most of the successful online brands identified a market opportunity early and moved quickly to capitalise on the potential they saw. A first-mover advantage is an important asset for an online brand. By getting to market early, the company benefits from the buzz, and traffic, that comes with innovation, and it can acquire customers while it is still inexpensive to do so. It locks up important content and distribution partnerships, and it aligns itself with the most influential venture capital sources. Getting to market quickly can provide an Internet company with significant momentum and a valuable boost over the competition. The challenge then lies in keeping up the momentum. Many strong online brands were also early-movers on the Internet, and benefited from additional hype, and extensive word-of-mouth due to its novelty. As Internet penetration exploded, these well-publicised brands also took off.



Relentless Innovation Successful Internet brands are continuously looking for new ways to wrap more value around their core service and offering, and are continuously adding new services and functionality to their sites. This type of relentless innovation is instrumental in ensuring brands develop traction and build momentum to keep ahead of competitors. In many cases, the innovations are the result of the company's ability to data mine its vast database of customer information, to create new services and content that satisfy customer needs. By leveraging unique customer information, these innovations are difficult for competitors to reproduce, giving the brand an edge, and differentiating it from other brands.

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Ability to Leverage Offline Brand and Assets Bricks-and-mortar brands are often well positioned to succeed on the Internet. They possess critical assets that give them an advantage over pure online start-ups. They have an established brand, established customer relationships, established fulfilment systems and infrastructure, and a physical presence (tangibility) - factors that clearly differentiate them from pure players. Strong clicks-and-mortar brands are integrating their online and offline activities to leverage the strengths of each other. In doing so, these brands must respect their core brand elements and maintain consistency in the service quality that is expected, but at the same time, expand the brand experience to meet customers' expectations in the online world. Through extensive and seamless integration, clicks-andmortar brands are providing customers with true added-value, while reaping the benefits of lower customer acquisition costs and extended reach.

The Internet has radically changed the business and competitive environments. Yet while everything is being turned upside down, one component remains unchanged - value remains (and always will) the basic building block for every successful brand.

7.2

OPPORTUNITIES FOR FURTHER RESEARCH

Given that the commercial Internet only began to take off in 1994, there has been a limited time horizon to evaluate the durability of Internet brands. In addition, with the emergence of wireless access and new platforms, new opportunities and dynamics will emerge as companies develop innovative ways of acquiring customers, building relationships and satisfying needs. Therefore, ongoing research would be necessary to build on the findings of this dissertation. Nevertheless, the author believes that the core concepts and key factors identified that contribute to successful online brands are likely to persist. Brands and brand-building tools tend to be associated with consumer markets, however, they are equally important in business markets. As such, the concepts, tools and key factors outlined in this dissertation are also applicable to business markets. Nevertheless, an in-depth analysis, drawing on several case studies from business markets, would represent an exciting opportunity for further research. Having established a strategic perspective on building online brands, this dissertation would benefit from complementary in-depth research in the social and psychological dynamics of the Internet and its impact on consumer behaviour. 110

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APPENDICES

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APPENDIX A - Interbrand's Ranking of the Top 60 Brands (www.interbrand.com) Brand Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

Coca-Cola Microsoft IBM General Electric Ford Disney Intel McDonald's AT&T Marlboro Nokia Mercedes Nescafe Hewlett-Packard Gillette Kodak Ericsson Sony Amex Toyota Heinz BMW Xerox Honda Citibank Dell Budweiser Nike Gap Kellogg's Volkswagen Pepsi-Cola Kleenex Wrigley's AOL Apple Louis Vuitton Barbie Motorola Adidas Colgate Hertz IKEA Chanel BP Bacardi Burger King Moet & Chandon Shell Rolex Smirnoff Heineken Yahoo! Ralph Lauren Johnnie Walker Pampers Amazon.com Hilton Guinness Marriot

Country of Origin

Industry

Brand Value ($US mln)

US US US US US US US US US US Finland Germany Switzerland US US US Sweden Japan US Japan US Germany US Japan US US US US US US Germany US US US US US France US US Germany US US Sweden France UK Cuba US France UK Switzerland Russia Holland US US UK US US US Ireland US

Beverages Software Computers Diversified Automobiles Entertainment Computers Food Telecoms Tobacco Telecoms Automobiles Beverages Computers Personal Care Imaging Telecoms Electronics Financial Services Automobiles Food Automobiles Office Equipment Automobiles Financial Services Computers Alcohol Sports Goods Clothing Food Automobiles Beverages Personal Care Food Software Computers Fashion Toys Telecoms Sports Goods Personal Care Car Hire Housewares Fashion Oil Alcohol Food Alcohol Oil Luxury Alcohol Alcohol Software Fashion Alcohol Personal Care Books Leisure Leisure Leisure

83,845 56,654 43,781 33,502 33,197 32,275 30,021 26,231 24,181 21,048 20,694 17,781 17,595 17,132 15,894 14,830 14,766 14,231 12,550 12,310 11,806 11,281 11,225 11,101 9,147 9,043 8,510 8,155 7,909 7,052 6,603 5,932 4,602 4,404 4,329 4,283 4,076 3,792 3,643 3,596 3,568 3,527 3,464 3,143 2,985 2,895 2,806 2,804 2,681 2,423 2,313 2,184 1,761 1,648 1,634 1,422 1,361 1,319 1,262 1,193

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APPENDIX B - The McKinsey 7S Framework The McKinsey 7-S Framework* (see diagram below) outlines the dimensions of a business, showing how they are interrelated. It is critical that all these dimensions come together and are re-enforcing, and as the business environment changes, all these dimensions must change accordingly.

THE MCKINSEY 7S FRAMEWORK

STRUCTURE

STRATEGY

SYSTEMS

SHARED VALUES

SKILLS

STYLE

STAFF

Traditionally, companies operated at a steady pace and were essentially geared up for repetitive transactions and routine activities. However, with the fast pace of technological change, global competition, customer empowerment, and the emergence of a knowledgebased economy, Internet companies must be able to move at warp-speed. They must move quickly to capture new opportunities, commit and deploy resources, constantly innovate, respond to competitive and market dynamics, and reorganise as appropriate. As such, the approach that was successful for traditional companies is not suitable for new entrepreneurial Internet companies. The fundamental difference is that traditional companies have focused on 'managing for efficiency', whereas entrepreneurial Internet companies must focus on 'managing for change'. As a result, all their operations, activities, and structures are aligned differently, from the culture of the organisation and how employees are compensated (stock options) to the flexible and virtual structure, the informal management style and the constant strategy re-calibration. *

Peters, T. & Waterman, R., 'In Search of Excellence', (Harper & Row), 1982

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BIBLIOGRAPHY

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CONSULTING AND RESEARCH REPORTS Abela, A.V. & Sacconaghi, A.M. Jr., 'Value Exchange: The Secret of Building Customer Relationships On Line', The McKinsey Quarterly, 1997, No. 2, pp. 216-219. Anonymous, 'Amazon.com: It's an Ocean, Not A River', A Report by Goldman Sachs Investment Research, November 11, 1999 Anonymous, 'Amazon.com: The Power of an "Internet Franchise" Emerges!', A Report by Goldman Sachs Investment Research, February 4, 2000 Anonymous, 'Building the B2B Foundation - Positioning Net Market Makers for Success' An A.T. Kearney Report - 2000. Anonymous, 'Competing in the Digital Age', Economist Intelligence Unit, 1999 Anonymous, 'Creating a High-Impact Digital Customer Experience', An A. T. Kearney Report, 2000 Anonymous, 'Creating Loyalty Out of Chaos: The Inevitability of E-Business' - A Report by PricewaterhouseCoopers, 1999 Anonymous, 'Dotcom Advertising is Confusing the Public', The Economist Intelligence Unit, June 1, 2000 - (www.ebusinessforum.com) Anonymous, 'Electronic Business Outlook', - Research by PricewaterhouseCoopers / The Conference Board, 1999 (www.pwcglobal.com and www.converence-board.org) Anonymous, 'How the Internet will Transform Global Business', The Economist Intelligence Unit, January 21, 2000 (www.eiu.com) Anonymous, 'Snapshots of Sale Innovations on the Web', An A. T. Kearney Report, 2000 Anonymous, 'Targeting Consumers via the Internet', The Economist Intelligence Unit, April 13, 2000 (www.eiu.com) Anonymous, 'The E-business Technology Forecast' - A PricewaterhouseCoopers Report, 2000 Anonymous, 'The Era of the Virtual Customer', A Report by Deloitte Consulting, June 29, 1999 (www.deloitteconsulting.com) Anonymous, 'The Future of E-Business' - A Research Report by TeslaGroup, 1999 (www.teslagroup.com) Anonymous, 'The Role of Digital Brands in the Digital Economy' - An A. T. Kearney Report, 1998 Anonymous, 'The State of Online Retailing', A Shop.org Study by Boston Consulting Group, November 1998

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Bentley, J., Embury, A., & Shaw, D., 'Organising for the Digital Economy', A PricewaterhouseCoopers Report, 2000 Bernoff, J., Morrisette, S. and Clemmer, K., 'The Forrester Report' - A Report by Forrester Research Inc. - April 17, 2000 Berryman, K., Harrington, L., Layton-Rodin, D., & Rerolle, V., 'Electronic Commerce: Three Emerging Strategies', The McKinsey Quarterly, 1998, No.1, pp. 152-159 Bhise, H., Farrell, D., Miller, H., 'The Duel for the Doorstep' - The McKinsey Quarterly 2000, No.2, pp. 33-41 Calkins, J., Farello, M., Smith-Shi, C., 'From Retaining to E-tailing', The McKinsey Quarterly, 2000, No.1, pp. 140-147 Cartellieri, C., Parsons, A., Rao, V., & Zeisser, M., 'The Real Impact of Internet Advertising', The McKinsey Quarterly, 1997, No.3, pp. 45-62 Cohen, A., Jordan, J., 'Electronic Commerce: The Next Generation', An Ernst & Young Report, 2000 Colony, G., 'Empowered Fruit Flies' - Forrester Research, 2000 (www.forrester.com) Cook, M., Rigby, D., Chu, J., & Morrison, G., 'Order Fulfilment: Delivering on the EPromise', A Bain & Co. Report, March 17, 2000 (www.bain.com) Court, D., Freeling, A., Leiter, M., & Parsons, A., 'If Nike can "Just Do it", Why Can't We?', The McKinsey Quarterly, 1997, No.3, pp.24-34 Court, D., French, T., McGuire, T., Partington, M., 'Marketing in 3-D', The McKinsey Quarterly 1999, No.4, pp.6-17 Court, D., Leiter, M., & Loch, M., 'Brand Leverage', The McKinsey Quarterly, 1999, No.2, pp. 100-110 Dayal, S., Landesberg, H., & Zeisser, M., 'Building Digital Brands', The McKinsey Quarterly, 2000, No.2, pp. 42-51 Desmet D., Francis T., Hu A., Koller T., Riedel G., 'Valuing Dot-coms', The McKinsey Quarterly 2000, No.1, pp.149-157 Epperson, T., 'Guerrilla Marketing: Innovative Brand Building on the Internet', A Mainspring Communications Report, January 22, 1999 (www.mainspring.com) Forsyth, J., Gupta, S., Haldar, S., Kaul, A., & Kettle, K., 'A Segmentation you can Act On', The McKinsey Quarterly, 1999, No.3, pp. 7-15 Freeland, D. G., & Stirton, S. 'Organising for e-Commerce' - A Boston Consulting Group Report, April 2000 Goff, J., Harding, D., Shah, R. and Singer, M., 'A New Way to Reach Small Businesses', The McKinsey Quarterly, 1998, No. 3, pp.172-176.

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Hagel, J., & Armstrong, A., 'Net Gain: Expanding Markets through Virtual Communities', The McKinsey Quarterly 1997, No.2, pp.140-153 Hagel, J., & Armstrong, A., 'Real Profits from Virtual Communities', The McKinsey Quarterly, 1995, No.3, pp.127-141 Hagel, J., & Rayport, J., 'The New Infomediaries', The McKinsey Quarterly 1997, No.4, pp.54-70 Harrington, L., & Reed, G., 'Electronic Commerce (Finally) Comes of Age', The McKinsey Quarterly, 1996, No.2, pp. 68-77 Henderson, T., & Mihas, E., 'Building Retail Brands', The McKinsey Quarterly, 2000, No.3, pp. 110-117 Jordan, J.M., 'Web Commerce at Amazon.com', An Ernst & Young Report - (www.ey.com) Kierzkowski, A., McQuade, S., Waitman, R., & Zeissr, M., 'Marketing to the Digital Consumer', The McKinsey Quarterly, 1996, No.2, pp. 180-183 Marathe, J., 'Creating Community Online', A Durlacher Report, 2000, (www.durlacher.com) Marathe, J., 'Internet Portals' - A Durlacher Report, May 1999 (www.durlacher.com) Melnicoff, R. M., '5 Rules of the eEconomy', Outlook 1999, No. 21 - A Publication by Andersen Consulting (www.ac.com) Mole, C., Mulcahy, M., O'Donnell, K., Gupta, A., 'Making Real Sense of Virtual Communities' - A PricewaterhouseCoopers Report, 1999 Morrisette, S., Clemmer, K. and Bluestein, W.M., 'The Forrester Report' - A Report by Forrester Research Inc., April 1998. Parsons, A., Zeisser, M., Waitman, R., 'Organising for Digital Marketing', The McKinsey Quarterly, 1996, No.4, pp. 185-192 Pecaut, D., & Vogtle, J., 'E-Commerce: Advantage Incumbent', A Boston Consulting Group Report, 1999 Purk, M., 'Relationship Marketing - Leveraging Customer Information to Build Customer Equity' - An A. T. Kearney Report, 1998 Rhodes, D., Dea, J., & Hemerling, J., 'Building a Successful Experience Brand', A Boston Consulting Group Report, 1999 (www.bcg.com) Rigby, D., Baveja, S., Rastogi, S., Zook, C., Chu, J., & Hancock, R., 'The Value of Online Customer Loyalty and How You Can Capture it', - A Mainspring Communication Report in collaboration with Bain & Co., March 17, 2000 (www.bain.com) Rutstein, C., 'The (www.forrester.com)

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Shaw, D., 'Organising for the 21st Century', A PricewaterhouseCoopers Report, 1999 Silverstein, M., 'Creating a Flawless Brand Experience', A Boston Consulting Group Report, 1998 (www.bcg.com) Simcoe, T., 'Innovations in Behavioural Marketing and Electronic Commerce', An Ernst & Young Report, 2000 Torris, T., 'Boo.com: Fashion Site Must Overcome Own Hype', The Forrester Brief, May 16, 2000 - (www.forrester.com) Torris, T., 'Boo.com's Demise: A Good Wake-Up Call', The Forrester Brief, May 19, 2000 (www.forrester.com)

ARTICLES FROM NEWSPAPERS AND MAGAZINES Anonymous, 'Amazon's Amazing Ambition', The Economist, February 26, 2000 (www.economist.com) Anonymous, 'AOL is paid $40 Million in 4-Year Marketing Pact' - The Wall Street Journal, December 17, 1997. Anonymous, 'Bn.com - Not a Best Seller' - Forbes, August 4, 2000 (www.Forbes.com) Anonymous, 'Boo.com' - Sporting Goods Business, July 6,1999 Anonymous, 'Boo.com Collapses as Investors Refuse Funds: Online Sports Retailer Becomes Europe's First Big Internet Casualty', The Financial Times, May 18, 2000 - (www.ft.com) Anonymous, 'Boo.com opens its virtual doors', Marketing Week, June 10, 1999 Anonymous, 'Boo.com Snags Delay Launch', The Financial Times, August 19, 1999 (www.ft.com) Anonymous, 'E-Commerce: Something Old, Something New', The Economist, Feb 26, 2000 Anonymous, 'E-Tailers', The Financial Times, January 4, 2000 - (www.ft.com) Anonymous, 'Future Shop: Apparel', Forbes, April 6, 1998 Anonymous, 'In Net Advertising, The Customer is Still King', Business Week, 1998 (www.businessweek.com) Anonymous, 'It's Got Brand', Chief Executive, CEO Report, 1999 Anonymous, 'Mind the Gap: Dave Hill Discovers the Casual Clothing Store Adept at Dressing Up Its Image', The Financial Times, April 18, 1998 - (www.ft.com) Anonymous, 'My Bout with Boo.com', BBC News Online, May 18, 2000 (http://news6.thdo.bbc.co.uk)

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Anonymous, 'On the Web, Experience is the Brand', Business Week, October 29, 1999 (www.businessweek.com) Anonymous, 'Online Fashion Retailer Sets European Start-up Record: Arnault and Benettons Back $125 million Launch of Boo.com', The Financial Times, May 10, 1999 - (www.ft.com) Anonymous, 'The Be-All and Do-All of the Net', Business Week - (www.businessweek.com) Anonymous, 'Top Web Retailer Collapses', BBC News Online, May 18, 2000 (news6.thdo.bbc.co.uk) Anonymous, 'What is Yahoo. Really?', Fortune, June 22, 1998, p. 168 Anonymous, 'What's Behind the Boom at eBay', Business Week, May 21, 2000 Anonymous, 'Yahoo! - The Company, The Strategy, The Stock' - Business Week, September 7, 1998 Anonymous, 'Yahoo! Forges Strong Brand While Adding Meaty Content' - Advertising Age, May 3, 1999 Auton, F., 'Brands Still Stay Centre Stage in the Dotcom Era', Marketing, April 27, 2000 Berger, M., 'Rewarding the Frequent Surfer', Sales and Marketing Management, January 1998, pp 86-87. Brady, D., 'How Barnes & Noble Misread The Web', Business Week, Issue 3667, February 7, 2000. Breen, B., ' Building Stronger Internet Identities', Marketing, September 16, 1999, pp. 25-26. Cole-Gomolski, B., 'Target: Customer Loyalty', Computerworld, May 4, 1998, p.25. Davenport, T., 'Sticky Business', CIO Magazine, February 1, 2000 Dye, R., 'How to Create Explosive Self-Generating Demand', Advertising Age, November 8, 1999. Eads, S., 'Dot.com TV Ads: The Good, the Bad, and the Left-Us-Clueless' - Business Week, December 1999 (www.businessweek.com) Ebenkamp, B., 'Boo.com sets $10m Brand Effort Focusing on Athletically Challenged', Brandweek, Volume 40 (29), July 19, 1999. Green, H., 'Shakeout E-Tailers', Business Week, May 15, 2000, (www.businessweek.com) Green, H., 'The Deadest Aim in the Branding Shootout', Business Week, July 9, 1998 (www.businessweek.com) Grish, K., Powell, M. and Harris, K., 'Boo.com', Sporting Goods Business, Vol. 32 (11), July 6, 1999, p. 61.

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Gross, N., 'Building Global Communities', Business Week, March 22, 1999 (www.businessweek.com) Guerin, M., 'Make that Web site work for your Brand', Marketing News, February 28, 2000 Guglielmo, C., 'Don't Write Off Barnes & Noble', Upside, Vol. 12 (6), June 2000, p. 132. Hartnett, M., 'The Future of Brands', Advertising Age, November 8, 1999 Hazleton, L., 'Jeff Bezos: How he Built a Billion-Dollar Net Worth Before his Company Even Turned a Profit', Success, July 1998. Himelstein, L., 'Yahoo! The Company, The Strategy, The Stock', Business Week (www.businessweek.com) Hof, R., Browder, S., & Elstrom, P., 'Internet Communities - Forget Surfers. A New Class of Netizen is Settling Right In' - Business Week, May 5, 1997, p.66 Jurvetson, S. & Draper, T., 'Viral Marketing' - December 16, 1998 - (www.dfj.com) Klein, S. & Lemmey, T., 'Customer Relationships: The Net's New Currency', The Standard, March 6, 2000 (www.thestandard.com) Kuchinskas, S., 'The E-Commerce Cometh', Brandweek, September 21, 1998, pp. 8-12. Lee, L., 'Clicks and Mortar at Gap.com', Business Week, Issue 3651, October 18, 1999, p.150. Lehman, D., 'Customer Loyalty is E-Commerce King', The Standard, March 31, 2000 (www.thestandard.com) Lovelace, H.W., ' Barnes & Noble: Hit Back!', Informationweek, August 30, 1999, p. 168. Marshall, C., 'Dot-com Brand-Building Runs Wild', Forbes, October 18, 1999 (www.forbes.com) McLuhan, R., 'A Lesson in Online Brand Promotion', Marketing, March 23, 2000, pp 31-32. Milliot, J., 'Billion-Dollar Bookselling: The Path of Kahn, Where B&N's Physical and Virtual Worlds Meet', Publishers Weekly, January 3, 2000, pp. 48-49. Milliot, J., 'BN.com Has Sales of $202m, losses of $102m', Publishers Weekly, Volume 247 (7), February 14, 2000 p.75 Moran, N., 'Brand and Trust on the Internet, Chemical Week, August 19, 1999 Nakache, P., 'Secrets of the New Brand Builders', Fortune, June 22, 1998 Neuborne, E., & Hof, R., 'Branding on the Net', Business Week, October 29, 1998 (www.businessweek.com) Neuborne, E., 'Dot.com Marketers Need to Kick the TV Habit', Business Week, January 24, 2000 - (www.businessweek.com)

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Neuborne, E., 'Why Boo Really Went Bust', Business Week, June 12, 2000 Neuborne, E., 'Why Famous Brands Often "Fracture" When They Hit the Web', Business Week, April 12, 1999, (www.businessweek.com) Pack, T., 'All About Books Online: Chapter Two.' Econtent, Volume 22 (5), October / November 1999, pp. 26-32. Patsuris, P., 'BN.com Not A Best Seller', Forbes (www.Forbes.com) Peters, T., 'Great Age of the Brand', Advertising Age, November 8, 1999 Ratliff, D., 'Read All About It', Discount Merchandiser, Volume 38 (1), January 1998, pp. 81-82. Reid, C., 'Bertelsmann Creates Global e-Commerce Group', Publishers Weekly, June 19, 2000, p.17. Riedman. P., 'Yahoo! Forges Strong Brand While Adding Meaty Content', Advertising Age, May 3, 1999. Robinson, E., 'The $20 Million Company...And It's $40 Million Ad Campaign', Fortune, November 8, 1999, pp315-316. Rosen, N., 'Interaction with the Right Style', Marketing, May 16, 1996, pp 39-42. Rosier, B., 'What went so horribly wrong with Boo.com?', Marketing, May 25, 2000. Sacharow, A., ' Disney -B&N Deal Signals in Online Sales Business', Adweek, Volume 39 (5), February 2, 1998. p. 32. Stepanek, M., 'You'll Wanna Hold Their Hands' - Business Week, March 22, 1999 (www.businessweek.com) Stone, A., 'What Could Give eBay a Booster Shot', Business Week, June 22, 2000 (www.businessweek.com) Stone, A., 'Will Amazon Become a Takeover Target?', Business Week, August 3, 2000 (www.businessweek.com) Vizard, M., 'Focus Should Be on Business Integration', InfoWorld, February 1, 1999, p.3 Wallace, B., ' The Internet Unplugged', Informationweek, December 13, 1999, pp. 22-24. Ward, M., 'From Boo.com to Boo.gone', BBC News Online, May 18, 2000 (news6.thdo.bbc.co.uk) Warner, B., 'Marketers of the Year: Jeff Bezos, Volume Discounter' - Brandweek, October 12, 1998 Weintraub, A., 'Dot-Coms (www.businessweek.com)

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