From a Village Marketing to Marketing to the Global Village
JACQUES NANTEL, PhD.
Full Professor
École des HEC, Montreal
INTRODUCTION
In the next few decades, consumers will witness a radically changing environment. Their decision-making processes, in particular the information search mechanisms that they use, will consequently be transformed. Marketing strategies must adapt accordingly. This presentation will demonstrate that owing to the substantial impact of new information technologies, marketing in the 21st century may resemble more closely that of the 19th than the 20th. We have thus evolved from a village marketing approach to global village marketing.
MAJOR PHASES IN THE EVOLUTION OF MARKETING
To better understand the status of marketing in the Year 2000, it is useful to examine how this corporate function has evolved over the years. Two major factors account for the changes in marketing of goods and services. The first is the availability of goods and a company’s capacity to adapt its offer. At the turn of the century, the industrial world was still in its adolescence. In many domains, the offer was limited, and relative inflexibility was especially common. The technological developments that followed World War Two, along with the emergence of new fabrication and distribution methods such as flexible production, the “Just-in-Time” supply system and EDI have resulted in the current ability to produce and deliver precisely what customers demand. Second, merchants today can better understand the needs of their clientele. In this respect, the evolution of marketing information systems has brought about the transition from a local marketing mode centred on understanding the needs of local consumers, or village marketing, to a marketing mode that can be just as adapted and personalized, but this time is tailored to global markets; it can be dubbed global village marketing.
The village
In most pre-industrial societies, the village merchant knew his customers very well. He could thus foresee each customer’s demand. Furthermore, when a supplier offered him new products, he knew precisely whether or not he could sell them. In fact, the problem facing the general merchant of the village was not determining his customers’ needs, but rather assessing his capacity to satisfy these needs. The availability of products and, to a greater extent, procurement difficulties were the most formidable constraints of pre-war marketing.
Mass marketing.
The advent of mass production, coupled with unprecedented development of the means of distribution and communication media, including television, has spawned the emergence of a new form of marketing: mass marketing. The primary goal of this approach is to be present on as many markets as possible, by using the largest number of distribution networks and vast communication resources. It is this form of marketing that lies at the origin of the advertising industry, as it largely exists today. This was the era of “Share of Voice, Share of Mind” and “There’s no such thing as bad publicity.” Essentially, the dominant philosophy of this marketing method is not adapting to customers’ needs, but rather attempting to reach and hoping to convince the largest possible number of customers. For example, in Canada, total advertising investment in 1994 exceeded $26 billion, corresponding to slightly more than $1,000 per consumer. It is disconcerting to note that, even today, very few companies are concerned with measuring the profitability of these investments.
Segmentation marketing and direct marketing
Two phenomena have prompted companies to carefully target their marketing strategies. First, consumer markets, at least in developed nations, have tended to reach the saturation point. As a result, corporate growth can be achieved only at the expense of rival companies’. The rules of the game are no longer to harness market growth, but rather to increase one’s market share. Less skilled at this more challenging game, certain large multinationals which have been losing their domestic market share have been turning to international markets to fuel their growth. While this strategy is ideal over the short term, it should not prevent the companies from ultimately envisioning the penetration of micromarkets. The second factor that explains the trend toward segmented marketing is that certain forms of marketing, including direct marketing, allow companies to better track the profitability of their investments. Nonetheless, it is important to bear in mind that this approach is effective only to the extent that the company possesses extensive information about its current and potential clientele. In the past few decades, progress in the area of information technology has led to a better understanding of consumer behaviour. Consequently, today no company can afford to overlook targeted and adapted strategies.
To monitor customers, marketing information systems require three sources of information. The first source is scanner data. Optic lenses in retailers’ cash registers allow monitoring of consumer behaviour. The company that fully harnesses the power of this information is able to determine who purchases which product, at which time, under which conditions (on special or not, on display or on the shelf, etc.), and in conjunction with which complementary products. This type of information is currently revolutionizing the retailing sector by introducing concepts such as management by product category, a management method that underlies the success of Wal-Mart. Retailers who possess this information have enhanced their power within the distribution network, a gain achieved at the expense of manufacturers who have too often ignored the scope of this type of information. The proliferation of house brands such as Metro, President’s Choice or Expériences reflects the power granted to retailers by consumer behaviour monitoring.
The second source of information that enables managers to better follow their markets consists of public databases such as those of Statistics Canada, Compusearch and Claritas. These databases enable companies to better identify the profiles of their clientele and consequently target their strategies more effectively. Today, a company that neglects the power of these tools cannot hope to enter the next marketing era.
The third and final source of indispensable information is a company’s internal databases. This source, generally used in combination with the two others, enables managers to identify its current or potential customers by name, along with their wants. These records, crucial to direct marketing, tell companies who is likely to buy what and how. To compile this data, companies initially opted for approximately targeted communication that invariably allows the possibility of direct contact with customers, such as toll-free lines. From advertisements and infomercials, companies generate lists of current and potential clients that they then use in marketing campaigns. These lists can subsequently be resold to other companies, based on the purchasing profile of the customers on the list. This form of marketing is the ultimate example of marketing that combines both product availability and virtually perfect information on customers. Nonetheless, this marketing method carries with it the seeds of its own destruction: Although it has swelled over 300% in the past five years, direct marketing, often in the form of postal mailing or unwanted telephone solicitation, operates on the principle that the customer is a passive being who must be approached and lured. However, if this logic is taken to the extreme, it becomes clear that direct marketing, as we know it, may soon reach its saturation point. For example, Canadian consumers make an average of 20 purchasing decisions each day; consider that each of these decisions is between four rival products, all equally effective and able to directly solicit the customer. Assuming that each consumer can devote an average of 10 seconds to processing the information presented, the total decision time is 26 minutes per day. The time invested in this activity is thus greater than the average time a North American spends doing exercise, and is only slightly below the time spent with children or spouses!
To summarize, in light of the saturation of what can be called the solicitation market, and given the possibilities offered by electronic commerce, marketing professionals should rethink their basic assumptions. It is no longer a question of passive customers and active merchants, but rather active customers and “passive” merchants. The ground rules for merchants will consist, more than ever, in offering the right information in the right sequence at the right places.
Marketing in the global village
The information superhighway will have a significant impact on consumer behaviour. For example, it will enable individuals to perform active and thorough searches for information before making a purchase. Customers can thus find the best product at the best price, under the best conditions. To do so, they will no longer be limited to comparing two or three products at a time by a few suppliers closest to their homes or by retailers who solicit them. Instead, they will have access to all retailers who operate in cyberspace. Through tools such as the WWW, the comparison will be much simpler. Already, companies such as CD-Now (http://cd-now.com) have captured a sizeable CD market share. Moreover, consumers can now make purchases not only based on information provided by retailers, but also on information from other consumers who are already grouping together on the Web to express a litany of complaints or compliments regarding certain manufacturers or retailers (http://www.Laggroup.com/mz/lemon/). In short, the Internet allows manufacturers, retailers and consumers alike to bypass the linear communication and distribution networks that have characterized marketing to date. In this respect, the main changes are linked to the fact that the distribution and communication networks will merge together. The electronic store will double as the retailer’s place of business, and maybe even the manufacturer’s, as well as their main communication channel. Consumers can thus query various servers in real time to find the product or service best suited to their needs, based on criteria they define. Admittedly, in this universe the notion of advertising must be adapted. Although there will always be a place for mass advertising, to increase the notoriety of a name or a product image, for example, conventional means will no longer be used to promote the prices or the objective attributes of products. In addition, on the information superhighway, each customer becomes in turn a source of information for other customers. This is a new reality with which companies must learn to contend. Furthermore, for companies who know how to adapt, this new environment offers unprecedented opportunities to boost marketing activities. First, given that Internet navigation leaves a trail, retailers can determine who visits their electronic stores, and those of the competition. Such information, valuable as it may be, need not be nominative to be useful. The firm A. C. Nielsen already offers (http://www.nielsen.com.au/webaudit/samplelog/sample.htm) a system that compiles the sociodemographic, geographic and purchasing profiles of consumers who enter an electronic site. This information enables companies to quickly adapt their communication and marketing strategies. In addition, companies can reach each other to offer precise segments an optimal mix of products and services. Virtual shopping centres are already being “built” or “modified”; their structure and composition is changing as understanding of the segment served increases.
Current magnitude of electronic commerce
Today, electronic commerce does not represent the end of traditional commerce, as some have claimed, nor is it merely a passing fad. Electronic commerce is here to stay. It is a growing force to be reckoned with. In the United States, the penetration rate in autumn 1997 was an estimated 34% of households (Yankelovich, Cybercitizen study), whereas the Canadian proportion was estimated at 24% (A.C. Nielsen). For the Québec market, a study by the RISQ (http://www.risq.qc.ca/enquete/3/intro/methodologie.html) revealed that nearly a quarter of the participants in the third study have already ordered or paid for a product on the Internet. The main purchases, corroborating the American and Canadian findings, were computer products (software and computer equipment), followed by entertainment products (books, CDs, trips and magazines). For now, the transmission of credit card numbers on the Internet is the most widely used payment method, although a majority of consumers report that they are still uncomfortable with this payment method.
Impact of the information superhighway on the commerce structure
If the information superhighway has an impact on the way in which consumers procure their goods and services, it will necessarily have a major influence on the way in which these products are marketed. Four key areas of change will be examined below: market globalization, reduction of entry barriers, radical transformation of certain types of retailers and the growth of distribution logistics.
Market globalization
Since the advent of NAFTA and the formation of blocs such as the European Union and the Pacific Rim, market globalization is becoming more prevalent than ever. The exchange-centred rationale of these agreements advocates that a company can gain considerably from targeting a precise segment, even at the world-wide scale, rather than attempting to capture an entire, often heterogeneous, local market. Although it is impeccable, this business strategy must be backed by a series of market studies conducted throughout the world, and companies must put in place an octopus-like distribution network. The information superhighway will change this constraint and will consequently reduce entry barriers for new players. In the coming years, competition is expected to intensify exponentially in all sectors, including those of current consumption. Conceivably, a customer who purchases $500 worth of coffee per year and who is already used to purchasing in large quantities at warehouse stores such as Price Club may purchase directly from a Colombian seller who could ship the coffee four times year at a fraction of the price. This service already exists at the international level. Furthermore, the electronic superhighway can be considered merely the latest link in the “Just-in-Time” concept chain, which began with the advent of EDI, which adjusts manufacturers’ supply with retailers’ demands. The next stage was ECR, which creates the same relationship between retailers and customers.
Impact on the structure of commerce
Although it is difficult to estimate the proportion of commerce that will be served by the information superhighway by the end of the century, one can confidently assume that the Internet will have a significant effect on certain types of commerce. As mentioned above, every product or service that can be digitized can be distributed electronically. The first foreseeable consequence is the drop in demand for rental space.