Strategic Marketing for

Internet Companies

Milton Kotler, President

Kotler Marketing Group

IT Forum
University Club, Nov. 15, 2000

Setting the Stage

We are moving from an old
market economy to a new market
economy. The new economy is
powered by the Internet

Jack Welchs View

Embrace

the Net. Bring me a

plan how you are going to
transform your business beyond
adding an Internet site.

Ten Differences

Old Economy
Tangible assets
Scale
Vertical organization
- Protected markets
Competition
- Distribution hierarchy
- Rigid barriers
- Standardization
Domestic
Cycle time
- Seller power

New Economy
Intangible assets
Intrapreneurship
- Out-sourcing
- Open markets
Hypercompetition
- Direct to customer
- Flexible entry
- Personalization
Global
- Nanosecond culture
- Buyer power
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Key Elements of the Internet

Economy

The new economy is powered by information and

network technology
In B2B, the foundation is information exchange for
integrated supply chain management
In B2C, the Internet has become an integrated
sales, communications, distribution, and even
product design channel
The Internet has accelerated price transparency

The New Economy Problem

New Economy thinking has been driven by

technology and technological potential
Marketplaces are driven by customer demand
Customer demand for new technology only proceeds as
fast as it provides value to the customer
Customers do not buy for potential value, but for current
and future value

The Market has slipped into technology oriented

rather than customer oriented thinking

The New Economy Fast

Forward
The model of generating demand through
buzz marketing does not work
Generating customer demand is too costly
Path to profitability must prevail
B2B must demonstrate value to customers
B2C must create distribution push
The Internet economy enters its strategic
marketing phase

What is Strategic Marketing?

"Marketing

is not the art of finding clever

ways to dispose of what you make. It is
the art of creating genuine customer
value." - Dr. Philip Kotler

The Elements of Strategic

Marketing

Market research
Customer research
Segmentation and targeting customer markets
Positioning against the competition
Value proposition and branding
Product, Pricing, Distribution and Communication
strategy
Tactical campaign
Budgeting and implementation
Monitoring performance and control
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Do Internet Companies
Understand these Elements?

A lot of companies have forgotten that in order

to keep the client they have in the first place, they
have to have models and processes in place to
keep their client loyal to their brand -- a business
developer for an ASP
Everything on the Internet is a component. You
sell the features, benefits and convenience... and
focus on your customers costs... It is a lot like
selling a McDonalds hamburger -- the founder
of an Internet software company

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What Strategic Marketing Isnt

Buzz Marketing
Paying for site visits
PR to Impress VCs
Advertising revenue
model
Rush to IPO
Rush to brand and build
share
Cutting prices
Eyeballing customers

Strategic Marketing
Targeting unmet needs
Branding the value
A business model based
on transaction
Validating the business
model before going
public
Research and target
attractive segments
Demonstrating value
Achieving distribution
push
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B2C Strategic Marketing

Issues (1)

The Internet is not yet revolutionary in B2C:

not creating enough additional demand
Priceline: the segment with a high preference for
price over convenience and flexibility is too small
to support a low-margin business

A dot com has to facilitate existing demand

not try to create it
Amazon.com and Napster: real innovation is in the
distribution
Ticketmaster and travel sites: Internet builds on
the original business model
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B2C Strategic Marketing

Issues (2)

Identify and size realistic target segments

Pets.com: the real opportunity for a pet care
specialist was to serve the high-involvement
purchaser; but these are niche markets, not mass
markets

The product must be customer driven, not

technology driven
Lands End addresses real needs with online
shopping pals and an online model
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B2C Strategic Marketing

Issues (3)

Work with the old economy to complete the

offering and leverage competencies
JC Penney now offers its logistics for outsourcing
Yahoo and Kmart partnered to create
BlueLight.com
Petsmart is the healthiest in pet care - it had 500
stores to bring marketing support and financial
stability to its money-losing Internet business
Peapod vs. Webvan

Content, hits, and advertising revenues are

not an adequate business model

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B2B Strategic Issues (1)

A

technological Gold Rush

Numerous startups competing in every niche
Compelling need to acquire customer territory
Everyone is making the same claims
Consequently, the marketing challenge is seen as
SHOUTING LOUDER in the media
Price is used to gain sales at the expense of
profitability
Premature branding
Panic instead of tactics
The marketing plan only ratifies internal
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assumptions

B2B Strategic Issues (2)

To find the winning product model, you must
find the right customer market for your
technology
Customers want benefits, not technologies
Is your technology a feature or a product?

Is its added value substantial enough to go-tomarket as a stand-alone product?

Should you go for an M&A to enhance another
product on the market
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B2B Strategic Issues (3)

The

stratification of the customer

segments must be reflected in
marketing strategy
officedepot.com provides different levels of
service and differentiated pricing for its
most valuable customers

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B2B Strategic Issues (4)

The product has to fit the customers core

business processes and culture
Develop the best technologies if you can, but
develop your products around your customers
real capabilities, not the ones you wish they had
Part of segment attractiveness is the customers
capacity to act on their need
For Apexmail, the biggest obstacle to growth is the
refusal of potential customers to understand the
economics of outsourcing
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B2B Strategic Issues (5)

The

most common pricing strategy is

competitive pricing
The danger is that competitors will cut their price
when they get desperate for a sale and force you
to follow
The best pricing strategy is economic value
pricing. This requires that you document and
demonstrate in monetary terms the greater total
value of your offering
Lowest total cost
The price premium paid by the customers customer
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VC Strategic Issues
Is the company going-to-market or to M&A?
VCs are presented business plans without
either a marketing plan or customer research

VCs need a strategic marketing due diligence

process to understand the value of their
investment to customers
VCs need to incorporate a strategic marketing
culture
VCs need a strategic marketing resource to
deploy
VCs need a Marketing Scorecard to track the
progress of their investments

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Start-up Strategic Issues

Technological orientation is a barrier to customeroriented market strategy that must be overcome

A robust business model and documented progress
is the only sustainable defense against equity dilution
Beware: buzz marketing is easier to accept than
strategic marketing, because it toots the technology
horn
Unfocused market entry is the norm:
leads to higher costs, frustrated and demoralized
salespeople, out-of-control pricing, and unrealized marketing
potential
Product models and sales strategy must be guided by a
strategic marketing plan
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Why Strategic Marketing?

Companies in the New Economy need to
know where they fit in converging markets
What is the strategic direction you must follow
to participate in this process?

Are you a product? Focus marketing resources on your

brand equity to a target segment

Are you the consolidator/aggregator? Aggregators

acquire outsourced components, while focusing their
resources on understanding and meeting customer needs

Are you a value-adding feature? Feature companies

merge or partner to serve the customers need for superior,
comprehensive product offerings

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