2631025 Brand Building 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

O N T H E I N T E R N E T

S S S S U U U U C C C C C C C C E E E E S S S S S S S S F U F U F U F U L L L L

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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CONTENTS SUBJECT PAGE

1.1 Overview 7

1.2 Objectives 9

1.3 Methodology 9

1.4 Structure 11

2.1 Introduction 13

2.2 What is a Brand? 13

2.3 The Layers of a Brand 14

2.4 Product and Service Brands 15

2.5 Branding & the Buying Process 16

2.6 The Importance of Customer Satisfaction and Loyalty 18

2.7 Emotional Loyalty 19

2.8 The Concept of Brand Equity 20

2.8.1 The Value of Brands to Customers 22

2.8.2 The Value of Brands to Companies 22

2.9 Conclusion 23

3.1 Introduction 25

3.2 Overview of the Brand-Building Process 25

3.3 The Value Proposition 26

3.3.1 Added Value 27

3.3.2 Distinctive Brand Identity 28

3.4 Developing the Framework and Communicating the Value Proposition 30

3.5 Building Customer Relationships 31

3.6 Characteristics of Successful Brands 32

3.7 Conclusion 32

CHAPTER 1 INTRODUCTION 6

CHAPTER 2 THE NATURE OF BRANDS 12

CHAPTER 3 BUILDING BRANDS 24


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4.1 Introduction 34

4.2 Overview of the Internet 34

4.2.1 The Defining Characteristics of the Internet 35

4.3 The Growth of the Internet 35

4.4 The Internet & e-Commerce 39

4.5 The Impact of the Internet on Business 40

4.6 Conclusion 43

5.1 Introduction 45

5.2 The New Dynamics of Brands 45

5.3 The Importance of Customer Loyalty Online 47

5.4 Increasing Returns Economics and First-Mover Advantage 48

5.5 Viral Marketing 50

5.5.1 The Case of Hotmail.com 51

5.6 The Online Experience & The 7Cs Framework 52

5.7 The Interactive Brand-Building Model 57

5.8 Limitations of Brand-Building on the Internet 59

5.9 Conclusion 60

6.1 Introduction 62

6.2 Case Study: Amazon.com 62

6.2.1 Company Overview 62

6.2.2 Value Proposition 62

6.2.3 Sources of Value - The 7Cs Framework 64

6.2.4 Brand-Building Strategy 66

6.2.5 Other Factors that Contribute to their Brand Leadership 69

6.2.6 Conclusion 70

6.3 Case Study: BarnesandNoble.com 71

6.3.1 Company Overview 71

6.3.2 Value Proposition 72

6.3.3 Sources of Value - The 7Cs Framework 72

6.3.4 Brand-Building Strategy 73

6.3.5 Conclusion 75

CHAPTER 4 THE INTERNET 33

CHAPTER 5 BUILDING BRANDS ON THE INTERNET 44

CHAPTER 6 CASE STUDIES 61


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6.4 Case Study: Boo.com 76 6.4.1 Company Overview 76 6.4.2 Value Proposition 76 6.4.3 Sources of Value - The Failure of Boo.com 77 6.4.4 Brand-Building Strategy 78 6.4.5 Conclusion 79

6.5 Case Study: CDnow 80 6.5.1 Company Overview 80 6.5.2 Value Proposition 80 6.5.3 Sources of Value - The 7Cs Framework 81 6.5.4 Brand-Building Strategy 83 6.5.5 Other Factors that Contribute to their Brand Leadership 84 6.5.6 Conclusion 85

6.6 Case Study: eBay 86 6.6.1 Company Overview 86 6.6.2 Value Proposition 86 6.6.3 Sources of Value - The 7Cs Framework 87 6.6.4 Brand-Building Strategy 91 6.6.5 Conclusion 92

6.7 Case Study: Gap.com 93 6.7.1 Company Overview 93 6.7.2 Value Proposition 93 6.7.3 Sources of Value - The 7Cs Framework 94 6.7.4 Brand-Building Strategy - Extensive Integration 96 6.7.5 Conclusion 97

6.8 Case Study: Yahoo! 98 6.8.1 Company Overview 98 6.8.2 Value Proposition 98 6.8.3 Sources of Value - The 7Cs Framework 99 6.8.4 Brand-Building Strategy 102 6.8.5 Other Factors That Contribute to their Brand Leadership 104 6.8.6 Conclusion 104

7.1 Conclusion & Discussion of Key Findings 106 7.1.1 Key Factors that Contribute to Building a Successful Online Brand 107

7.2 Opportunities for Further Research 110

Appendix A Interbrand's Ranking of the Top 60 Brands 112

Appendix B The Mckinsey 7S Framework 113

CHAPTER 7 CONCLUSION 105

APPENDICES 111

BIBLIOGRAPHY 114


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Figure 1.1 Years to Reach $100 million in Sales 7

Figure 1.2 Research Methodology 9

Figure 2.1 A Brand is More Than a Product or Service 13

Figure 2.2 Layers of a Brand 14

Figure 2.3 Five-Stage Model of the Buying Process 16

Figure 2.4 Steps Between Evaluation of Alternatives and a Purchase Decision 17

Figure 2.5 The Satisfaction-Loyalty Relationship 18

Figure 2.6 Creating Emotional Loyalty 20

Figure 2.7 Brand Progression 20

Figure 2.8 Brand Equity 21

Figure 3.1 Brand-Building Mechanism 25

Figure 3.2 Define the Value Proposition 26

Figure 3.3 Kapferer's Brand Identity Prism 29

Figure 3.4 The Innovation-Adoption Model 30

Figure 4.1 The Three Layers of the Internet 34

Figure 4.2 Growth in Internet Host Computers and Major Developments 36

Figure 4.3 Accelerated Rate of New Technology Acceptance 36

Figure 4.4 The Virtuous Growth Cycle of the Internet 37

Figure 4.5 What are People Doing Online? 38

Figure 4.6 World-wide Commerce on the Internet (1998-2003) 39

Figure 4.7 The Structure of an Online Company 43

Figure 5.1 The Network Effect 48

Figure 5.2 The Virtuous Spiral of Online Growth 49

Figure 5.3 The 7Cs Framework 52

Figure 5.4 Factors Affecting Web Brand Loyalty 53

Figure 5.5 The Community Hexagon 55

Figure 5.6 Customer Access to Information 56

Figure 5.7 The Interactive Brand-Building Model 57

Figure 5.8 Website Promotion Methods - Popularity & Effectiveness 58

Figure 5.9 Categories Suitable for Interactive Marketing 60

Figure 6.1 Overview of Amazon.com's Website 64

Figure 6.2 Amazon.com's Associates Programme 67

Figure 6.3 Overview of BarnesandNoble.com's Website 72

Figure 6.4 Overview of Boo.com's Website 77

Figure 6.5 Overview of CDnow's Website 81

Figure 6.6 Overview of eBay's Website 88

Figure 6.7 Overview of Gap's Website 94

Figure 6.8 Overview of Yahoo!'s Website 100

Figure 6.9 Overview of My Yahoo! 101

LIST OF FIGURES


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Table 5.1 The Emerging Brand-Building Environment 46

Table 6.1 Amazon.com - Timeline and Major Milestones 63

Table 6.2 BarnesandNoble.com - Timeline and Major Milestones 71

Table 6.3 Boo.com - Timeline and Major Milestones 76

Table 6.4 CDnow - Timeline and Major Milestones 80

Table 6.5 eBay - Timeline and Major Milestones 87

Table 6.6 Gap.com - Timeline and Major Milestones 93

Table 6.7 Yahoo! - Timeline and Major Milestones 99

LIST OF TABLES


6

CHAPTER 1

INTRODUCTION


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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 re-

thought, 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.

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

5.1

3.23.9

3.5

2.0 1.7

2.9

0

1

2

3

4

5

6

CDnow Onsale.com1 Amazon.com Cyberian Outpost

eBay Barnesand noble.com

Priceline.com

FEBRUARY 1994

JULY 1994

MARCH 1995

SEPTEMBER 1995

MARCH 1997

JULY 1997

JULY 1994

DATE OF

INCEPTION 1 Since merged with Egghead.com

FIGURE 1.1 - YEARS TO REACH $100 MILLION IN SALES


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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 Christensen, C., & Overdorf, M., 'Meeting the Challenge of Disruptive Change', Harvard Business Review, March - April

2000, Volume 78 Issue 2, pp. 66-76 2 Hoffman, D. L. and Novak, T. P., 'How to Acquire Customers on the Web', Harvard Business Review, May-June 2000 3 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


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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.

ACADEMIC RESEARCH

SECONDARY DATA

CASE STUDIES CONCLUSIONHYPOTHESIS

The 7Cs Framework & The Interactive

Brand-Building Process

FIGURE 1.2 - RESEARCH METHODOLOGY

Primary Data


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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 brand-

building 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.


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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.


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CHAPTER 2

THE NATURE OF BRANDS


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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.

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

PRODUCT OR SERVICE

SCOPEATTRIBUTES

QUALITYUSES

COUNTRYOF ORIGIN

USERIMAGERY

SYMBOLS

SELF-EXPRESSIVEBENEFITS

BRANDPERSONALITY

ORGANISATIONALASSOCIATIONS

EMOTIONALBENEFITS

BRAND-CUSTOMERRELATIONSHIPS

BRAND

FIGURE 2.1 - A BRAND IS MORE THAN A PRODUCT OR SERVICE

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


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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.

PRODUCTOR SERVICE

BASIC BRAND

AUGMENTED BRAND

POTENTIAL BRAND

Quality

Features

Packaging

Name

Design

Guarantees

Service Credit & Terms

Delivery& Installation

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

FIGURE 2.2 - LAYERS OF A BRAND


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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.


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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).

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).

NEED RECOGNITION

INFORMATION SEARCH

EVALUATION OF

ALTERNATIVES

PURCHASE DECISION

POST-PURCHASE

BEHAVIOUR

FIGURE 2.3 - FIVE-STAGE MODEL OF THE BUYING PROCESS

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


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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.

EVALUATION OF

ALTERNATIVES

PURCHASE INTENTION

ATTITUDES OF OTHERS

(WORD-OF-MOUTH)

UNEXPECTED SITUATIONAL

FACTORS

PURCHASE DECISION

FIGURE 2.4 STEPS BETWEEN EVALUATION OF ALTERNATIVES AND A PURCHASE

DECISION


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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.

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 Jones, T., & Sasser, E., 'Why Satisfied Customers Defect' - Harvard Business Review, Nov-Dec 1995 7 Hart, C. W. and Johnson, M. D., 'Growing the Trust Relationship', Marketing Management, Spring 1999

1 2 3 4 5

SATISFACTION

LOW

HIGH

LO

YA

LT

Y

“HOSTAGES”

“MERCENARIES”“TERRORISTS”

“APOSTLES”

CompletelySatisfied

CompletelyDissatisfied

HIGHLY COMPETITIVE

ZONE

• Commodity • Consumer

indifference • Many

substitutes • Low switching

costs

NON COMPETITIVE

ZONE

• Regulated • Proprietary

technology • Few substitutes• High switching

costs

FIGURE 2.5 THE SATISFACTION-LOYALTY RELATIONSHIP & THE IMPACT OF COMPETITIVE ENVIRONMENT

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


19

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 Peppers, D. & Rogers, M., 'The One to One Future', 1993 9 McWilliam, G., 'Building Stronger Brands through Online Communities' - Sloan Management Review, Spring 2000


20

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.

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).

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.

UNKNOWN BRAND

BRAND AWARENESS

BRAND PREFERENCE

BRAND ACCEPTABILITY

BRAND LOYALTY

FIGURE 2.7 - BRAND PROGRESSION

• Congruence with Life Themes

• Accomplishment of Life Projects

• Resolution of Current Concerns

TRIGGERS PATHWAYS THRESHOLDS

Brand Personification

Community as an End in itself

User Community

Personal Relationship

with the Brand

EMOTIONALLOYALTY

FIGURE 2.6 - CREATING EMOTIONAL LOYALTY

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


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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.

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

BRAND EQUITY

FIGURE 2.8 - BRAND EQUITY

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

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

BRAND LOYALTY

OTHER PROPRIETARY BRAND ASSETS

PERCEIVED QUALITY

BRAND ASSOCIATIONS

BRAND AWARENESS

• Reduced Marketing Costs• Trade Leverage • Attracting New

Customers - Create Awareness - Reassurance

• Time to Respond to Competitive Threats

• 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

• Competitive Advantage

• Help Process / Retrieve Information

• Reason-to-Buy • Create Positive Attitude /

Feelings • Extensions


22

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 12 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.


23

• 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.


24

CHAPTER 3

BUILDING BRANDS


25

3.1 INTRODUCTION

Building a strong brand is a complex task. This chapter spells out the traditional brand-

building 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.

BRANDEQUITY

LOYALTY

DIFFERENTIATION

SATISFIEDCUSTOMERS

ADDEDVALUE

TRIAL

PRODUCT /SERVICE

PR

ADVERTISING

SELLING

PROMOTION

PRESENTATIONSDISPLAY

POTENTIALBRAND

PRODUCTOR

SERVICE

FIGURE 3.1 - BRAND BUILDING MECHANISM


26

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.

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).

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.

BRAND = P X I X AV

What is the optimal product or

service offering that delivers this

value?

Who is your customer?

What does your customer value?

FIGURE 3.2 - DEFINE THE VALUE PROPOSITION


27

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 Doyle, P., 'Marketing Management and Strategy', 2nd Ed. (Europe: Prentice-Hall), 1998, pp. 169 15 Jones, J. P., 'What's in a Name? Advertising and the Concept of Brands' (Lexington, MA, Lexington Books), 1986


28

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


29

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.

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

FIGURE 3.3 - KAPFERER'S BRAND IDENTITY PRISM

PERSONALITY

CULTURE

REFLECTION

RELATIONSHIP

PHYSICAL

SELF-IMAGE

PICTURE OF RECIPIENT

BRAND STYLE

INT

ER

NA

LIS

AT

ION

EX

TE

RN

AL

ISA

TIO

N

BRAND THEMES

PICTURE OF SENDER

BRANDCORE

Physical The physical qualities and features of the product or service

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

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

The intangible exchange between the brand and the customer Relationship

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

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


30

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.

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

AWARENESS

INTEREST

EVALUATION

TRIAL

ADOPTION

FIGURE 3.4 - INNOVATION-ADOPTION MODEL

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


31

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 long-

term, 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


32

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


33

CHAPTER 4

THE INTERNET


34

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.

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.

FIGURE 4.1 - THE THREE LEVELS OF THE INTERNET

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

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

NEWS GROUPS & MAILING LISTS Allow users to communicate with each other, but in practice not in real time.


35

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).


36

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 4.2 - GROWTH IN INTERNET HOST COMPUTERS AND MAJOR DEVELOPMENTS

'82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98

100

1,000

10,000

1,000,000

10,000,000

100,000

100,000,000

1989:WWW HTML

Language invented

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

1993:Mosaic browser invented at

University of Illinois is released to public

1995:Dell, Cisco and Amazon begin to aggressively

use Internet for commercial transactions

1994: Netscape releases Navigator browser

1969: Internet / ARPAnet was created

Source: Network Wizards, 1998, as cited in 'E-Business Technology Forecast' - a PricewaterhouseCoopers Report, 2000

FIGURE 4.3 - ACCELERATED RATE OF NEW TECHNOLOGY ACCEPTANCE

41

25

22

9

7

2

0 5 10 15 20 25 30 35 40 45

Pager

Cable TV

Fax

VCR

PC

www

YEARS TO REACH 10 MILLION CUSTOMERS

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


37

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.

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

FIGURE 4.4 - THE VIRTUOUS GROWTH CYCLE OF THE INTERNET

COMPUTING SERVICES

BECOME MORE WIDESPREAD

TECHNOLOGY AND SERVICE PROVIDERS MULTIPLY

INFRASTRUCTURE DEVELOPS

COMMUNITIES OF INTEREST

PROLIFERATE

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

- E-Marketplaces - Content Aggregators - Consumer Aggregators

- 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

- Low-cost networking alternatives - High-powered servers - Attractive infrastructure and

middleware software - Cheap bandwidth - Momentum toward open standards


38

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.

0% 20% 40% 60% 80% 100%

Trading Stocks

Banking

Auctions

Homework

Chat Rooms

Job Search

Stock Quotes

Purchasing

Entertainment

Work / Business

Travel Info

Product Info

Hobbies

Reading

Surfing

General Info

E-mail

FIGURE 4.5 - WHAT ARE PEOPLE DOING ONLINE?

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


39

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.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1998 1999 2000 2001 2002 2003Year

Bill

ions

US$

B2CB2B

FIGURE 4.6 - WORLD-WIDE COMMERCE ON THE INTERNET (1998-2003)

Source: Gartner Group, April 2000


40

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


41

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)


42

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 co-

operation, 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)


43

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 brand-

building strategies, tools and opportunities. This is the substance of the next chapter.

FIGURE 4.7 - THE STRUCTURE OF AN ONLINE COMPANY

CUSTOMER

CONTENT PARTNERS

• Print Media• Broadcast • Online

CUSTOMER

CUSTOMER

CUSTOMER

CUSTOMER

SUPPLIER

SPECIALTY SUPPLIER

SPECIALTY SUPPLIER

SUPPLIER

FULFILMENT AND

DISTRIBUTION PARTNERS

AFFILIATE PROGRAMME

OUTSOURCING / TECH PARTNERS • Customer Services• Creative • Site Development• Hosting

PORTALS

www.dot.com

JOINT VENTURE

PARTNERSHIP

STRATEGIC MARKETING ALLIANCES

OFFLINE PRESENCE

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

BACK OFFICE

FRONT OFFICE


44

CHAPTER 5

BUILDING BRANDS ON THE INTERNET


45

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)


46

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.

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

• Monologue

• Public

• Mass

• Anonymous

• Adversarial

• Focused primarily on one-off transactions

• Remote Research

• Manipulative, 'stimulus-response' approach

• Standardised

• Dialogue

• Private

• Individual

• Named

• Collaborative

• Focused on relationship over time

• Intimate learning

• Genuine needs driven, service approach

• Customised

TABLE 5.1 - THE EMERGING BRAND-BUILDING ENVIRONMENT

TRADITIONAL APPROACH ONE-TO-ONE APPROACH


47

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, May-June 2000

30 A Forrester Research Study, as cited in 'Creating a High-Impact Digital Customer Experience' - An A. T. Kearney White Paper, 2000


48

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.

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

FIGURE 5.1 - THE NETWORK EFFECT

2 PARTICIPANTS 1 POSSIBLE INTERACTION

3 PARTICIPANTS 3 POSSIBLE INTERACTIONS




THE NETWORK EFFECT = N(N-1)/2 where N is the number of users


49

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.

32 Melnicoff, R. M., '5 Rules of the eEconomy', Outlook 1999, No. 21 - A Publication by Andersen Consulting 33 'The State of Online Retailing' - A Shop.org Study in collaboration with The Boston Consulting Group, Nov 1998

FIGURE 5.2 - THE VIRTUOUS SPIRAL OF ONLINE GROWTH

• Unique value added for customers • Scaleable customer service,

fulfilment • Defensible advantage against

competitors

• Brand experience • Customer loyalty / high switching costs • Sourcing and distribution

leverage from scale • Learning curve effects

• 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

INCREASED RICHNESS & REACH

OF CUSTOMER RELATIONSHIPS

ENHANCED REVENUE STREAMS

SCALEABLE, DEFENSIBLE

MODEL

LONG-TERM COMPETITIVE ADVANTAGES


50

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


51

5.5.1 The Case of Hotmail.com

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).

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.


52

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).

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 36 '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)

The 7Cs

CONNECTIVITY

CONVENIENCE

CUSTOMER CARE

COMMUNICATION CONTENT

FIGURE 5.3 - THE 7CS FRAMEWORK

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

CUSTOMISATION

COMMUNITY


53

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.

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 Cognitiative Inc. as cited in Business Week, October 29, 1999 (www.businessweek.com) 39 Davenport, T., 'Sticky Business', CIO Magazine, February 2000 Issue

FIGURE 5.4 - FACTORS AFFECTING WEB BRAND LOYALTY

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

Outdated Information

Slow Response Time

Site Downtime Poor Customer Service

KEYS TO WEB BRAND LO YALTY

37% 36% 36%

27%

0%

10%

20%

30%

40%

Ease of Use & Navigation

Fast Response Time

Familiarity Relevant & Accurate Information

KILLERS OF WEB BRAND LO YALTY

26% 24%22%

16%

0%

10%

20%

30%

40%


54

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) 41 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.


55

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-to-

site 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.

SENSE OFBELONGING

MUTUALBENEFITS OF

PARTICIPATION

PRECISELYTAILOREDCONTENT

AWARENESSOF OTHER

LIKE-MINDEDUSERS

ABILITY TOINTERACT WITH

OTHERS ON WEBSITE

OPPORTUNITYTO SHAPE THEDEVELOPMENT

OF WEBSITE

IDENTIFICATIONWITH THE

BRAND

FIGURE 5.5 - THE COMMUNITY HEXAGON

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


56

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)

INTERNET ACCESS DEVICE

FIGURE 5.6 - CUSTOMER ACCESS TO INFORMATION

PORTAL

SOFTWAREAND

BROWSER

VERTICAL

PORTAL

CUSTOMER

WEBSITE

CUSTOMER SIDE INTERNET SIDE


57

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.

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.

ATTRACT CONSUMERS TOTHE APPLICATION

GE

NE

RA

TE

INT

ER

EST

AN

D

PA

RT

ICIP

AT

ION

MAKE SURE CONSUMERS’

COME BACK

CU

STO

MIS

E I

NT

ER

AC

TIO

N

TO

PR

OV

IDE

UN

IQU

E V

AL

UE

LEARN ABOUT C

ONSUMERS’

PREFERENCES

ATTRACT

LEARN

RE

LA

TE

RETAIN

EN

GA

GE

FIGURE 5.7 - THE INTERACTIVE BRAND-BUILDING MODEL

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)


58

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

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.

FIGURE 5.8 - WEBSITE PROMOTION METHODS - POPULARITY & EFFECTIVENESS

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


59

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 up-

dated 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).


60

• 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.

FIGURE 5.9 - CATEGORIES SUITABLE FOR INTERACTIVE MARKETING

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)

HIGH

HIGH

LOW

LOW

SOFTWARE

INTERACTIVE GAMES

SELECTED GROCERIES

BOOKS

GASOLINE

TOYS

FINANCIAL SERVICES

NEWS

BABY PRODUCTS

SPORTING GOODS

INSURANCE

MUSIC

HIGH-END APPAREL

TRAVEL SERVICES

AUTOS

MEDICAL SERVICES

REAL ESTATE BROKERAGE

WHITE GOODS

FINE JEWELLRY

CONSUMER ELECTRONICS CONVENIENCE

STORES

POTENTIAL FOR RELATIONSHIP BUILDING

FIT

WIT

H I

NT

ER

AC

TIV

E M

ED

IA


61

CHAPTER 6

CASE STUDIES


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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. 48 '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)


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TABLE 6.1 AMAZON.COM - TIMELINE AND MAJOR MILESTONES

1994 July - Amazon.com is founded by Jeff Bezos

1995 July - Amazon.com goes live

1996 July - Amazon launches Associate Programme

1997 May - Amazon IPOs for $49million. Company has a market capitalisation of $561 million July - Amazon enters into agreement with Yahoo! - Amazon becomes exclusive bookseller for Excite September - Amazon becomes exclusive bookseller on Prodigy shopping Network October - Amazon becomes exclusive bookseller on Alta Vista November - Amazon and Netscape announce strategic online deal - Amazon opens second distribution centre December - Amazon and Geocities strike exclusive bookseller agreement

- Amazon completes $74 million credit facility

1998 February - Amazon Associates Member Programme surpasses 30,000 members March - Amazon.com Kids goes online May - Amazon acquires Bookpages and Telebook to expand in the UK June - Amazon opens Music Store July - Amazon establishes relationship with Intuit's personal finance website and select desktop

software. August - Amazon buys PlanetAll ad Junglee Corporation September - Amazon and Yahoo! Strike Global Merchant Agreement October - Amazon.com enters European book market November - Microsoft signs Amazon.com as Premier Merchant on MSN shopping December - Cyberian outpost joins product retailers on Amazon.com's new shopping referral service

1999 January - Amazon opens third distribution centre to meet rapid growth February - Amazon invests in DrugStore.com March - Amazon invests in Pets.com - Amazon launches online Auction site April - 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 May - Amazon invests in HomeGrocer.com - Amazon announces further plans to expand distribution network to meet rapid growth. July - Amazon.com Electronics and Amazon.com Toys & Games is launched - Amazon announces strategic alliance and invests in Gear.com August - Amazon introduces "Purchase CirclesTM", featuring thousands of bestseller lists for hometowns,

workplaces, universities, and more October - 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 November - 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 December - 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

2000 January - 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 February - 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 March - Amazon announces investment in kozmo.com - Amazon and eziba.com announce investment and strategic alliance - Amazon opens customer service centre in The Hague April - 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 May - 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.

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

FIGURE 6.1 - OVERVIEW OF AMAZON.COM'S WEBSITE

Immediate customer recognition and customisation of product offering

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

Wide selection of product categories


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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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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 e-

Cards 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.

FIGURE 6.2 - AMAZON.COM'S ASSOCIATES PROGRAMME

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


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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 back-

office 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 Hazleton, L., 'Jeff Bezos: How he Built a Billion-Dollar Net Worth Before his Company Even Turned a Profit',

Success, July 1998. 52 Saunders, R., 'Business the Amazon.com Way', (Oxford: Capstone Publishing), 1999


70

"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


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 AmericaOnline'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 - Develops distribution alliance with Wired Digital May - Launches revamped site, including software store July - Launches Business Solutions programme October - Sells 50% stake to Bertelsmann for $200 million - Adds used, rare, and out-of-print books to inventory November - Attempts to buy Ingram Book Group

1999 May - $450 million IPO - Price war erupts with Amazon.com July - Launches Music Store August - Announces plans to develop huge distribution centre October - Launches Prints & Posters Gallery and electronic greeting card service December - Unveils 'bn.com on the Go' to provide access to wireless devices

2000 January - Barnesandnoble.com and Microsoft announce that they will create an eBooksuperstore

February - Launches Internet Radio May - Offers same day delivery in Manhatten - Acquires minority stake in NotHarvard.com June - 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 July - Launches Video Store


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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.


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).

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 e-

mail 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)

FIGURE 6.3 - OVERVIEW OF BARNESANDNOBLE.COM'S WEBSITE

Simple, logically structured, and easy-to-navigate site

New Initiatives

Categories focus on books, software, music


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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.


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 (four-

year 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 'AOL is paid $40 Million in 4-Year Marketing Pact' - The Wall Street Journal, December 17, 1997 56 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, 1-800-

Flowers.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.


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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 well-

established 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.


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

TABLE 6.3 BOO.COM - TIMELINE AND MAJOR MILESTONES

1999 Mid year - Raises funding of $125 million November - Site goes live - Multi-million pound advertising campaign created by BMP DDB

2000 January - First sign of problems - they redesign site, sack 20% of staff and sell stock at 40% discount

February - Announces it has only 500,000 unique visitors May - Appeals for $30 million more funding - fails and appoints KPMG as liquidator. Company is put up for sale.


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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.

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

FIGURE 6.4 - OVERVIEW OF BOO.COM'S WEBSITE

Miss Boo


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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.


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 60 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


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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-to-

use, 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


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.


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)

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

1999 March - Merges with N2K, former arch rival May - Launches merged CDnow/N2K site July - Merges with Columbia Records

2000 June - CDnow and Time Inc. announce marketing alliance July - CDnow is acquired by Bertelsmann and will become a wholly-owned subsidiary of

Bertelsmann e-Commerce Group (BeCG)


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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.

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.

FIGURE 6.5 - OVERVIEW OF CDNOW'S WEBSITE

Customisation options

Simple, easy-to-navigate, and quick-to-load pages

Interesting Content


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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.


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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.



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)


85


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


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.


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


87

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)

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 May - Launches "My eBay!" to customise the online auction experience July - eBay acquires Jump Inc. and its online trading site (Up4Sale) September - eBay IPOed raising $58 million October - eBay launches 'About Me' feature, allowing users to create personal homepages

1999 January - Compaq Computer Corporation and eBay form a strategic U.S. co-marketing relationship. February - eBay expands strategic relationship with Netscape March - America Online and eBay announce strategic marketing alliance April - eBay acquires Butterfield & Butterfield; and raises $700 million May - eBay acquires Kruse International June - eBay acquires alando.de - Germany's leading online person-to-person trading site July - 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.

August - eBay teams up with Carclub.com to provide automotive service for eBay Users - eBay and AOL launch co-branded site October - eBay goes wireless with Palm VII connected organiser - eBay goes live in Australia November - eBay launches local websites in Baltimore & Washington DC, Boston, Las Vegas, Providence,

Nashville, Norfolk & Virginia Beach, Seattle & Tacoma, Milwaukee, Dallas & Fort Worth, andSalt Lake City

December - eBay acquires Blackthorne Software

2000 February - GO.com and eBay announce multi-year strategic marketing agreement - eBay and NEC form a joint venture in Japan - eBay launches in Japan March - eBay and Autotrader.com Create auction-style marketplace for used cars - eBay launches Business Exchange May - eBay and Keen.com form exclusive three-year relationship

June - eBay and Wells Fargo launch electronic cheque as an alternative to credit card payments andtraditional cheques

July - eBay and Ultimatebid.Com form alliance


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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.

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.

FIGURE 6.6 - OVERVIEW OF EBAY'S WEBSITE

Simple, categorically arranged, and easy-to-use site allowing multiple options for browsing

Customisation

Added convenience and sense of community through option of focusing on local area


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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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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 co-

ordinate 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.


91


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 word-

of-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


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.


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 74 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

TABLE 6.6 GAP & GAP.COM - TIMELINE AND MAJOR MILESTONES

1969 - The first Gap store opens in San Francisco, California 1986 - GapKids opens its first store 1989 - BabyGap is born 1997 - Gap opens its online store at www.gap.com to make shopping even easier for US customers 1998 - 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. 1999 - America Online (AOL) and Gap Inc. announce multi-year partnership.


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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-to-

shop 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.

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

FIGURE 6.7 - OVERVIEW OF GAP'S WEBSITE

Immediate customer recognition

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

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


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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: Shop@AOL 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!


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.


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 Interbrand (www.interbrand.com) - see Appendix A 79 'Yahoo! - The Company, The Strategy, The Stock' - Business Week, September 7, 1998 (www.businessweek.com)


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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).

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

1997 January - Launches Yahoo! Chat February - Launches Yahoo! Classifieds October - Secures distribution agreement with Compaq October - Acquires Four11 October - Secures Distribution agreement with Gateway December - Launches Yahoo! Sports

1998 April - Launches Yahoo! Computers May - Cross-marketing with AT&T June - Acquires Viaweb; Launches Yahoo! Real Estate September - Opens Yahoo! Auctions October - Acquires Yoyodyne November - Launches Yahoo! Shopping (offering more than 2 million products)

1999 January - Secures distribution agreement with Hewlett-Packard January - Signs distribution agreement with IBM January - Acquires Geocities March - Secures distribution on PagerNet pagers April - Acquires Broadcast.com; Launches Yahoo! Radio June - Acquires Online Anywhere July - Launches Yahoo! Resumes August - Introduces free e-greetings, and unveils Yahoo! Digital September - Introduces Bill Payment services

2000 March - Yahoo! forms agreements with Palm Inc., to provide web-based services to PalmTM

handheld computers March - Yahoo! unveils Yahoo! Finance Vision

March - Yahoo! acquires Arthas.com allowing them to offer person-person payment solutions March - Yahoo! Launches Business-to-Business Marketplace

May - Yahoo! launches the next wave of Yahoo! Everywhere service for consumers with Internet-ready mobile phones and wireless devices.

June - Yahoo! acquires eGroups July - Yahoo! Shopping launches personalised shopping service


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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.

FIGURE 6.8 - OVERVIEW OF YAHOO!'S WEBSITE

Customisation options

Simple, well structured, easy-to-use, and quick-to-load webpages

Important contact point to search information on any subject


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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 brand-

customer relationship, and contributing to their reputation as a quality service provider.

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.


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Communication

By positioning itself as a site that users frequent often, and through communications via e-

mail, Yahoo! maintains close contact with customers. Yahoo! also encourages customers to

e-mail ideas and feedback.


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 brand-

building 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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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.


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, VP-

Brand 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 added-

value 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.


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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-and-

mortar 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.


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APPENDICES


112

APPENDIX A - Interbrand's Ranking of the Top 60 Brands (www.interbrand.com)

Brand Name Country of Origin Industry Brand Value ($US mln) 1 Coca-Cola US Beverages 83,845 2 Microsoft US Software 56,654 3 IBM US Computers 43,781 4 General Electric US Diversified 33,502 5 Ford US Automobiles 33,197 6 Disney US Entertainment 32,275 7 Intel US Computers 30,021 8 McDonald's US Food 26,231 9 AT&T US Telecoms 24,181

10 Marlboro US Tobacco 21,048 11 Nokia Finland Telecoms 20,694 12 Mercedes Germany Automobiles 17,781 13 Nescafe Switzerland Beverages 17,595 14 Hewlett-Packard US Computers 17,132 15 Gillette US Personal Care 15,894 16 Kodak US Imaging 14,830 17 Ericsson Sweden Telecoms 14,766 18 Sony Japan Electronics 14,231 19 Amex US Financial Services 12,550 20 Toyota Japan Automobiles 12,310 21 Heinz US Food 11,806 22 BMW Germany Automobiles 11,281 23 Xerox US Office Equipment 11,225 24 Honda Japan Automobiles 11,101 25 Citibank US Financial Services 9,147 26 Dell US Computers 9,043 27 Budweiser US Alcohol 8,510 28 Nike US Sports Goods 8,155 29 Gap US Clothing 7,909 30 Kellogg's US Food 7,052 31 Volkswagen Germany Automobiles 6,603 32 Pepsi-Cola US Beverages 5,932 33 Kleenex US Personal Care 4,602 34 Wrigley's US Food 4,404 35 AOL US Software 4,329 36 Apple US Computers 4,283 37 Louis Vuitton France Fashion 4,076 38 Barbie US Toys 3,792 39 Motorola US Telecoms 3,643 40 Adidas Germany Sports Goods 3,596 41 Colgate US Personal Care 3,568 42 Hertz US Car Hire 3,527 43 IKEA Sweden Housewares 3,464 44 Chanel France Fashion 3,143 45 BP UK Oil 2,985 46 Bacardi Cuba Alcohol 2,895 47 Burger King US Food 2,806 48 Moet & Chandon France Alcohol 2,804 49 Shell UK Oil 2,681 50 Rolex Switzerland Luxury 2,423 51 Smirnoff Russia Alcohol 2,313 52 Heineken Holland Alcohol 2,184 53 Yahoo! US Software 1,761 54 Ralph Lauren US Fashion 1,648 55 Johnnie Walker UK Alcohol 1,634 56 Pampers US Personal Care 1,422 57 Amazon.com US Books 1,361 58 Hilton US Leisure 1,319 59 Guinness Ireland Leisure 1,262 60 Marriot US Leisure 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.

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 knowledge-

based 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

STRUCTURE

SHARED VALUES

SKILLS

STYLE

STAFF

SYSTEMS

STRATEGY

THE MCKINSEY 7S FRAMEWORK


114

BIBLIOGRAPHY


115

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120

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121

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122

Anonymous, 'On the Web, Experience is the Brand', Business Week, October 29, 1999 (www.businessweek.com)

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124

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125

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WEBSITES www.ac.com

www.adl.com

www.amazon.com

www.atkearney.com

www.bain.com

www.barnesandnoble.com

www.bcg.com

www.boo.com

www.businessweek.com

www.cdnow.com

www.deloitteconsulting.com

www.durlacher.com

www.ebay.com

www.ebusinessforum.com

www.economist.com

www.eiu.com

www.ey.com

www.forrester.com

www.ft.com

www.gap.com

www.gapinc.com

www.interbrand.com

www.mckinseyquarterly.com

www.nua.com

www.pwcglobal.com

www.yahoo.com

2631025 Brand Building on the Internet

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