Opportunity knocks but once.

Author: Mary Modar (USA), translated by Sun Kangqi et al.
Translator: Sun Kangqi, Shen Zehua
Country:
Publisher:
Publish Date: 2002-04-01
Features: To attract online consumers, you must first understand: Why do different groups shop online? When and how do they shop online? Unfortunately, it's almost impossible to say for sure: Which consumers will become passionate online shoppers, and which will not, and why—this is even more important. Take my friend Sue and me as an example. In the eyes of a typical market researcher, we look very similar. Both of us are under 40, married for ten years, with husbands working in the financial industry, and both live in the suburbs of Boston. Sue has three children, and I have two, all aged between 3 and 8. We attended similar colleges, and even the types of cars we drive are the same. However, when it comes to online shopping, I am an enthusiast, while she is not. I love online shopping, of course, and it did take some time to learn how to use the internet and find what I wanted to buy. Once I got the hang of it, I found endless joy in shopping online—you don’t have to go to the store, drive there, worry about parking, or drag the kids around the store, or spend time coaxing them to stay quiet. Now, whenever I buy toys, clothing, books, music CDs, video recorders, or even tickets, I definitely go online. Beyond online shopping, the internet has made my life richer in many ways. If my husband and I decide to renovate the kitchen, I’ll first research online to see what kitchen appliances to buy. If we’re going on vacation, I’ll use the internet to find the best destination. To throw a great six-year-old birthday party for my son, I found an online candy wholesaler and ordered a "Star Wars" 24-box candy dispenser. Not only am I a fan of online shopping, but I often encourage my friends to try it too. However, Sue won’t listen to my persuasion—she will never shop online. In fact, they don’t even have a computer at home. They tell me they might get one soon, but only "for the kids." Even if they do, she doesn’t think she’ll use it often, let alone shop online. "I know exactly where to buy things," she says. "I have a good relationship with my travel agent, and I’m close with the salespeople at my favorite clothing stores or local bookstores. I like them to serve me." Online shopping is great for some people, but for me, it’s a bit too much effort." For CEOs who want to understand the benefits of the internet for their businesses, seeing Sue and me have such different attitudes can be discouraging. They wonder: Will all consumers shop online? How long will it take for that to happen? Which consumers will shop online, and which won’t? This information will influence key business investments—whether to focus on human and technical resources—and will affect the development of overall business plans. However, traditional market research and management experience can’t help business leaders predict how receptive consumers will be to online shopping. Even relatively reliable demographic data, a common market research tool, doesn’t help much. When the CEOs of "R"Us Toys looked at their industry’s customer statistics, they found that most customers were young parents, and only 10% currently ordered online. However, this data couldn’t tell them how many young parents would shop online in the future or when. Will it increase by 2–3 percentage points? Or will online shoppers reach 30% by 2003? According to Forrester Research’s findings, that number will be closer to 60%. How did we arrive at this data? To find the drivers of tech-related consumer behavior, we at Forrester Research spent three years studying the topic. In this research, we identified characteristics that are likely to make someone an online shopper. This information is particularly critical because only companies that know which types of consumers will shop online soon will succeed in the online marketplace. Companies that wait and see will likely miss their chance. By the time consumers have formed their final habits of online shopping, it will be too late. Let’s return to Sue and my example. Since we have so much in common, what makes us have such different attitudes toward online shopping? If I had to answer in one sentence, it’s that we have completely different attitudes toward technology. I’m a tech optimist, while Sue is a tech pessimist. I’m willing (and actually very eager) to spend time learning how to use new technology, and the effort doesn’t frustrate me—it feels like an opportunity to improve my life. I even find learning how to operate this technology fun. In contrast, Sue is extremely indifferent to technology. She feels she’s already too busy to spend more time figuring out how to store all her personal information on her "Palm Pilot." Without a computer, her life isn’t any worse. Sometimes, she even thinks technology has brought more harm than good to the world. Once, she told me, "Technology is making the world lose its humanity." Now, let’s look at the bigger picture. Our research shows that 52% of the population is tech optimists, while the other 48% are pessimists. This means that slightly more than half the public is willing to embrace online shopping, while the other half is unwilling to buy personal computers or have anything to do with the internet. To make matters worse, tech pessimists—even if they buy a computer—do so only for their children’s schoolwork or their work needs. Transitioning them to online shopping will naturally be much slower than for tech optimists. In the coming years, as more consumers—especially mainstream consumers—shop online, the competition between traditional and online companies will change dramatically. As we mentioned in the section, broader consumer acceptance will elevate the status of established brands but will also demand that these companies offer products and services consistently online and offline. Our consumer tech mindset research shows that early adopters, mainstream consumers, and laggards have very different attitudes toward technology, resources, and online shopping motivations. Latecomers to online transactions often need a certain level of familiarity with the internet and financial means, requirements that early adopters don’t face. In the second section, we’ll examine this competition for online consumers from another angle. We’ve already explored the beliefs and motivations that drive consumer behavior, and now we’ll focus on the business models that are shaping the competition between traditional and online companies. The internet has made it possible for new business models to emerge. The question is: How can companies develop these new models? The section discusses what opportunities the internet will bring to consumer goods companies once it becomes as widely used as cars. To say that the internet has intensified competition among consumer goods retailers is a gross understatement. The internet has removed many barriers to competition that were once considered, such as geographic separation, information asymmetry, and lack of connection. While the idea that the internet intensifies business competition no longer surprises anyone, it’s worth spending some time examining and considering what would happen if internet commerce reached a critical mass. If online transactions reach $100 billion in share, they’ll still be a drop in the bucket in the consumer economy; if online business surpasses $1 trillion, it will bring far-reaching changes to the traditional consumer industry. At Forrester Research, we call the post-internet competition environment "dynamic trade." As internet technology matures, the consumer market will become more volatile and more sensitive to supply and demand changes—in other words, more dynamic. Because the internet has removed barriers to competition, companies will face competition from more rivals, and in most cases, competition based on lower prices. In dynamic trade: The internet makes supply and demand relationships transparent, driving prices down to the lowest competitive level. As market demand fluctuates, prices will become more volatile. The changes dynamic trade brings to the consumer industry are hard to predict, but as more people shop online, companies that don’t understand the dynamics of dynamic trade or fail to adjust their policies in time will clearly lose control over product pricing, revenue streams, and profits. Computers are not unfamiliar to consumer companies. Since the 1960s, banks have relied entirely on mainframe computers to track accounts, customer records, and balances. Banks like Citibank, which were among the first to install ATMs and own the ATM networks, gained a significant competitive advantage. In retail, Walmart used computers to disrupt the balance between itself and traditional stores, offering consumers lower prices through better inventory management and faster turnover, and winning a larger market share. In transportation, Federal Express developed a new overnight delivery service—only possible through a computer logistics system. In airline ticket bookings, American Airlines won market share by installing Sabre booking systems in travel agencies, making it easier to book American Airlines flights. The internet is forcing consumer companies to rely more heavily on computer technology. I’m acutely aware of this acceleration because, in the mid-1980s, as a tech industry analyst, I, like my peers, was tasked with finding the "Holy Grail"—chief information officers who could use technology to gain a real competitive advantage. Beyond well-known companies like Citibank, Walmart, Federal Express, and American Airlines, such chief information officers are hard to find. That’s because most chief information officers focus only on internal matters. Their job is to keep "critical task" systems running smoothly: phone lines must ring, bank accounts must be accessible at any time, networks must have backup lines, and transaction systems must be able to recover from failures automatically. While this clearly creates reliance on technology, it doesn’t fundamentally change the strategy of most companies. However, "critical task" systems differ greatly from "task redefinition" technology (customer-facing technology, such as websites). Websites, like all critical task systems, must run 24/7. But more importantly, they reflect a company’s value, service, and brand to customers. Because computer technology interacts with customers at the point of sale and in service, competition strategies are now more dependent on computer technology than ever before. The following three factors make tech management today more challenging: 1. External technological changes. Internet technology doesn’t originate from businesses themselves but from the computer industry. As a result, consumer product line managers, especially executives, lack the necessary technical expertise. In fact, many of them can’t even be considered non-technical professionals. 2. Ubiquity. Computer and networking technology are rapidly transforming customer interactions, retail points, services, and product delivery. These changes don’t involve the features of the products themselves. Therefore, computer technology now affects a wide range of different industries. 3. Speed. Computer technology is advancing at an astonishing pace and is unlikely to slow down anytime soon. Each generation of processor chips offers exponentially faster speeds while manufacturing costs continue to decline. This allows for further development in hardware design, software, and networking, which in turn utilizes the added processing power. While almost every industry will experience a phase of rapid technological change, the fundamental characteristic of the computer industry is competition centered around technological innovation.