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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | DECEMBER 11, 2000 PERSPECTIVE By Heather Green A Direct Line to Consumers in a Downturn Cutting out the middleman online might be an idea worth reviving -- especially for brands the consumer knows and makers that know their consumers
Not that it's a new idea -- just one that hasn't really caught on yet. Early in the commercialization of the Net, it became clear that the Web gave manufacturers, for the first time in a long time, the ability to have direct interaction with consumers. And for a brief spell in 1997 and 1998, the death of the middleman, dubbed disintermediation, was the provocative idea of the moment. It seemed loaded with opportunities that would rapidly transform the existing order. Airlines would bypass agents by selling online. Musicians would escape from the established distribution system. The threat of disintermediation, though, proved less potent than it appeared at first glance. Big brand names, including Levi Strauss, did make a go at selling directly online but soon backed off amid pressure from retailers. It became apparent that it would take longer than expected for big changes to happen. The airlines never really provided an easy enough way for consumers to shop online or compare prices. They're still working on their own joint site, Orbitz, that is designed to do just that. In the meantime, the Net ended up creating new middlemen, such as online travel agent Expedia.com. FROM CHOCOLATE TO MEAT. So the strategy of manufacturers selling directly to consumers remains largely an Internet opportunity, not a reality. During a downturn, though, the idea might be ripe for a revival. That's because with less spending by consumers, competition for each dollar will be fiercer and gaining market share that much tougher. Being innovative will be more important, not less so. Squeezing productivity out of every existing asset will be key. And despite the rise and fall of dot-coms and their business models, the inherent aspects of the Net are real: global reach, an information-rich environment, the ability to customize and target more precisely, and the chance to get into new businesses. If manufacturers doubt their appeal, certain indicators show that consumers know the top brands and are interested in interacting with them. A survey by Forrester Research found that 70% of people who have made an online purchase visited a manufacturers' site first. Based on this kind of interest, the research firm estimates that by 2004, 50 million shoppers will visit manufacturer sites to make a purchase. Some packaged-goods companies are already making stabs at combining their hard-worn understanding of consumers with the ability provided by the Net to reach new customers. A year after launching Reflect.com, a service that allows consumers to design their own beauty products, Procter & Gamble this fall debuted another customized product service. Personalblends.com sells customized coffee that consumers create based on questions about their tastes. Apparently, P&G has learned through years of taste-testing that there are links between what kinds of chocolate and salsa consumers like, how they prefer their meat cooked, and what kinds of coffee blends they like. CREATE YOUR OWN BLEND. It would make sense that the giant consumer packaged-goods companies in particular would have tons of research on hand that they can use in innovative ways. And by using just a bit of that learning, P&G is trying to expand into a new market that's uniquely suited to the Net: selling bags of create-your-own-blend coffee for $9.95. Of course, this requires a bit of a change in how consumers buy coffee. But if consumers find the research to be on target, they might just be willing to buy bags of coffee online. At this point, attempting new strategies doesn't have to mean years of losses, either. As with the P&G example, manufacturers can probably apply a lot of what they already understand about consumers. And selling online doesn't have to mean major investments in distribution infrastructure à la Amazon. There's a whole group of delivery and warehousing companies, ranging from established players like United Parcel Service to startups including SubmitOrder.com, that have distribution centers, expertise, and systems to handle product delivery. At the very least, how manufacturers approach selling directly to consumers could be an intriguing indicator of Net innovation in an economic downturn.  Green covers the Internet for Business Week in New York.  | | |
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