Elastic demand - undies and other Internet goods

What do you look for in underpants? Reliable elastic, room, support, lacy bits? When US clothing manufacturer Hanes wanted answers to such questions, Internet marketing expert Tom Vassos suggested they go to Internet Usenet newsgroups for the answer. It sounded like a long shot - surely they'd be better off commissioning a focus group - but it worked so well that Hanes set up its own Usenet group where people could give the company free feedback on undergarment likes and dislikes.

What do you look for in underpants? Reliable elastic, room, support, lacy bits? When US clothing manufacturer Hanes wanted answers to such questions, Internet marketing expert Tom Vassos suggested they go to Internet Usenet newsgroups for the answer.

It sounded like a long shot — surely they'd be better off commissioning a focus group — but by mining the news and discussion groups, Hanes soon found a group of women complaining about scratchy underwear. Not long after, Hanes set up its own Usenet group where people could give the company free feedback on undergarment likes and dislikes.

It's an anecdote that Vassos, who is an e-business adviser for IBM, uses to illustrate how organisations can exploit the Internet, not only to make and save money, but also to gain a competitive edge. Vassos, who is also an Internet marketing teacher on the University of Toronto's MBA programme and the author of Strategic Internet Marketing (Macmillan), offers an Internet marketing strategy framework consisting of five phases: foundation, exploitation, business extension, business innovation and strategic transformation.

Foundation: This involves making early decisions about strategy and the business case for going on to the Net, figuring out what the reach should be and creating core content. Vassos estimates that 60% to 70% of companies on the Internet are at this stage.

He says when it comes to the Internet; most organisations end up narrowing their reach down from their original intentions.

"A lot of people treat the Internet as a mass market of 100 million people and that's the wrong approach. It's 100 million markets, each with one person. Treat it as a one-on-one support and communications vehicle."

Carrying this to the extreme, some of Vassos's clients have focused on creating an intranet connection between themselves and one top customer only. For example, BOC (British Oxygen Corporation) Gases, which sells to the Massachusetts Institute of Technology (MIT), has set up an intranet connection between the two, allowing MIT to query the availability of gases, place orders and have purchases approved. "After doing this, BOC's market share with MIT increased and MIT liked the system so much they asked to use the same intranet to buy competitors' gases.

"This may sound strange at first but BOC Gases complied and now gets to see what is being purchased from competitors. In some cases BOC can come back with a more competitive offering."

Exploitation: "Think of it as exploiting the infrastructure of the Internet and using it to reduce operation costs." For example, using email to save the cost of long-distance charges, using the Internet to research competitors or using Usenet search engines like HotBot (available from www.hotbot. com) to conduct market research.

Hong Kong-based airline Cathay Pacific also wanted to do a focus group on what people thought of the airline. The company keyed its name into a Usenet search engine and about 45 mentions came up, some commending the airline and some complaining. Vassos says the airline could have emailed the complainers to find out more about what went wrong.

To monitor the Usenet groups on an ongoing basis, you can use filtering tools. "I asked it to monitor my name and nothing happened for six months until someone popped up recommending my book. That day I sent them a note saying thank you."

Other ways to exploit the Internet are to use it as an educational medium, a way of networking with companies around the world, and a purchasing tool.

Business extension: This third phase involves trying to drive more value out of the Internet, typically by linking it into back-end business systems.

"We're talking about the databases and business applications which companies have spent the past 10 years developing. Now they can open them up to the customer and let them query the database or generate orders themselves."

Business innovation: "This gets into things which may not even be feasible yet in the real world," says Vassos. "One piece is called an outbound strategy. The typical Web site has an inbound strategy — it's a bunch of pages waiting for people to come to them. Outbounding refers to sending something to people who request regular information from a site."

The virtual company PC Gifts and Flowers, which in the past 18 months has gone from being the 800th largest to the second largest florist in North America (in terms of revenue), attributes much of its success to its outbound strategy.

One way it achieved this was by providing automated customer support tools such as a gift reminder service. Customers type in the anniversary dates and birthdays for their loved ones, and a week before the event they receive an email message reminding them about it.

In Europe Godiva Chocolates went one step further by allowing Web site visitors to enter their own birthdays and the email addresses of family and friends. Thus the family and friends are reminded of the user's birthday.

"Or it may be something as simple as a newsletter," says Vassos. "Even if someone bookmarks your site they may not come back for two months so it's up to you to send the information to them."

Vassos believes that under this phase the Internet will redefine how the world conducts commerce.

"For example, there's a huge trend in America for online auctions now. Go to sites such as www.ebay.com and www.bid. com. I think we will see the auction model become more successful.

"In the future, airlines might let the customer set the price. They might say: "You tell me how much you're willing to spend and you're on my database until at some stage I'm desperate enough to offer this flight to you'. That way they can get rid of extra seats more easily."

"Let's say I can sell an online version of my book on the Internet for $20 but the potential customer isn't sure I'm any good as an author. So I sell chapter one for $2 and if they like it they can buy the rest for $18. Imagine trying to do something like that in the real world. In the real world you couldn't afford to sell one chapter.

"Now take this concept to the extreme. Imagine me selling chapter one of my book for negative $2. On the customers credit card statement it would come up as a $2 credit.

"Now if 100,000 people took chapter one it would cost me $200,000 but I would regard that as a marketing expense. If I could convert 20% of those visits to a full sale of the book I'd be rich."

Publishers typically spend 5% of what they expect to make in revenue on marketing.

Strategic transformation: "Where the company has to do some really different thinking at an executive level on how to capitalise on all of this."

Vassos says this stage needs a top-down executive push on issues such as whether the company really wants to go after global markets, whether it wants to translate into different languages or whether it wants to do micromarketing — go after small segments with targeted messages, something that is difficult to do in the real world.

"For example, the Nations Bank Web site (www.nationsbank.com) has segments targeted at the military community and Afro-American customers. Another bank called the G&L Bank is targeted at the gay community.

"There are travel agencies dedicated to Jewish, singles, gay and retired people. Your markets are going to start getting bitten off, one small segment at a time. Executives need to make a decision about what those segments are and what they want to go after."

The final piece in this phase is the creation of strategic alliances with other companies. In Vassos' home country, Canada, there is a site (www.discoverycanada.com) where you can not only book a flight, hotel and rental car but also book a ski-lift or golf course pass.

"It almost looks like there's one company called disoverycananda but it's really a strategic alliance of 12 companies which have joined another to make a bigger impact on the market. They share the cost of Web site development, and maintenance with other companies.

"We're seeing car dealers aligning with banks to approve car loans. Buy a car and get your loan approved in one hit. The next move would be to bring in the insurance companies. You will see a lot more alliances occurring on the Internet."

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