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New Marketing Models: Easy in Theory, Difficult in Practice

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For all of you who have spent the last few years buying the hype of marketing on the Internet, well it's time for brief look back on the promises of how the Internet will change marketing.

No doubt, many of you have subscribed to the Internet magazines that promised to let you in on the new secrets for e-business.  Fast Company told you to manage quickly or die, and Business 2.0 heavily promoted the ideas on their masthead about New Rules, New Ideas, etc., etc.

When we look at the current issues of these magazines we see hypocrites who are now talking about getting back to basics.  Not sure?  Fast Company is now promoting the idea of slowing down.  Business 2.0, which positions itself as providing the “secrets” of the new economy, is now mostly talking about basic ideas you could find in any regular business magazine (without the tons of advertisements).

As you can see, we're quite skeptical about the value of these magazines.  So, before you succumb to the visionaries and gurus that will shortly be pronouncing what is likely to occur next on the Net within their pages, let's look at a few of the most heavily promoted ideas in marketing over the past year.

PRICING


Here's one area that was supposed to change dramatically due to the net's ability to allow for “flexible pricing.”   Priceline was its head cheerleader. The Priceline model was supposed to shift power back into the hands of people and away from companies. Maybe, but aside from the fact that Priceline did what it could to take as much as possible as the middleman (oh, yes, the middleman was supposed to be disintermediated), the model looks to be questionable.

As we've said before, innovative pricing models may survive, but will they fundamentally require rethinking the basic tenets of marketing?  We don't think so.

Why?  First, by focusing on price, the models induce a lack of brand loyalty which manufacturers will be loath to endure.  Second, innovative pricing models are only interesting when you have a high involvement purchase and there are little substitutes (think “auction”). But people are trying to extend this rather specialized model into product categories that don't share these characteristics.  Why are they doing this?  Because the net makes it theoretically – if not practically – possible. DISTRIBUTION ARRANGEMENTS

The idea that the basic channel distribution system would be totally rearranged by the Internet was also unduly hyped as an area where new rules would apply.  Taking channel functions like warehousing and making them obsolete, of course, proved a ridiculous presumption – as heavy hitters like Amazon learned.  It turns out that retailing has always been hard, and not just because the technology wasn't there.

Companies that own their own warehouses and have a web presence, like Lands' End, are turning out to be the big winners on the net.  Brick and click stores and niche pure net plays like Send.com, that act as a broker – in the same way as eBay – are likely to survive.

Auto dealers were supposed to be eliminated (they're not), and grocers were supposed to be eliminated by Webvan and Homegrocer (the grocers are doing fine).

The point is that most aspects of channel distribution arrangements have not fundamentally changed due to the net.  Again, theoretically, but not practically possible. E-WEBS

New business models were also supposed to readily form around the fluid ideas of abolishing traditional distribution arrangements, like buyers and suppliers relationships.  This view, typical of net enthusiasts, and promoted in even the respectable business press (like Harvard Business Review) seemed oblivious to power, incentives, loyalties, and other human desires and tendencies that characterize people and businesses.

Take for instance, Priceline's grocery problem.  As the Industry Standard reported, their relationship with WebHouse, who was to supply the groceries, was a gamble from the start. The grocery business relied on manufacturers to eat the cost of the discount and sponsors to kick in promotional offers. WebHouse touted brand loyalty and data on customer shopping habits as the payoff for manufacturers, but major companies like Kraft and P&G were slow to get on board. That left the company stuck with basically subsidizing the groceries for customers.

If you were P&G and all you were being offered was brand loyalty based on a low price and customer data that you could get elsewhere, would you get on board?  Apparently not.  The incentives aren't there, even though the new e-web was possible.

B2B EFFICIENCY GAINS

Now, auctions and every other form of B2B efficiency maximizes are falling to the same fate.  Remember how nirvana was supposed to be a virtual market place where buyers and suppliers would meet to transact at the best prices?

There are two problems with this.  First, many buyer-supplier relationships are about, well, relationships, not just price.  Putting a focus on price not only kills the idea of a relationship, but also puts people whose jobs have traditionally been about building those relationships on the line.  They have no incentive to see this work.

Second, sellers don't necessarily want to show their pricing models to their competitors.  The exchanges, however, put these pricing models in clearly view for the competition.  Years of competition don't yield easily into cooperative exchanges.

Third, as we are now seeing, many companies feel that if these exchanges are so good, why don't they just do it themselves?  Consider the recent actions of Trane that recently opened it's own private exchange, rather than using an e-marketplace. Fancy Internet exchanges might end up looking like souped-up VPN's (virtual private networks).

Finally, with all the talk now about peer-to-peer networks as the next nirvana for exchanges, let's not forget that studies have shown that free file sharing arrangements (a al Gneutella) result in rampantfree-riding.  That is, some people share, and others free ride.  Not a system that is likely to stay around for long.

BRANDING PREDICTED TO DIE – CEO'S TAKE OVER MARKETING

Regis McKenna, the so-called founder of “modern marketing” anointed by the business press (in fact, he had little do with modern marketing) has now forecasted end of marketing in a recent interview and in his forthcoming book.  Yes, brands are supposed to die, and marketing is supposed to be taken over by the CIO or CEO.

First of all, no matter what McKenna says, brands will not die. Period.

Brands came about in the early 1900s when products began to all look the same and people needed the comfort of a brand name to make a decision in a increasingly complicated world.  Are we to believe that products are looking more distinct and unique?  Hardly.  Are we to believe that the world is becoming less complicated in which to make purchase decisions?

And thinking about CEO's taking over marketing, who is Regis talking to these days?  Certainly it's the same technology crowd he's hung around with for years.  These firms rarely ever had marketing departments (they were really marketing communications), and don't look anything like companies in other parts of the economy.  Surely he means the end of marketing in technology companies, not the companies who have practiced solid marketing for decades.

If marketing is taken over by CIOs and CEOs who have no formal training in the art and science of marketing, then these firms will surely go the same way as the thousands of startups that blew up this past year with the belief that marketing is an after-thought.  Let's hope not!

BOTTOM LINE

Our suggestion is this.  First, if it is theoretically possible to change the rules of marketing, ask if it is practical to do so.  Are the new rules compatible with the way people already behave?  Do they really want to learn new ways to do things?  Are there power issues to be resolved, incentives to be understood, etc.  These things don't go away just because of the Internet.

Second, the next time you hear a visionary or guru speak and talk about the future, remember this.  First, ask how well did they do the last time they predicted the future?  Second, if they are so good at fortune telling, they should be making billions of dollars a year trading interest rate futures, rather than piddling around with Internet predictions.


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Allen Weiss is the founder and publisher of MarketingProfs.com. He can be reached at amw@marketingprofs.com.

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