Factfile 33
Exploiting new channels
Channel innovation is separating market winners from market losers and not just in leading-edge technology industries, but also in the kinds of traditional markets where most of us still make a living. Take as an example Amazon.com. Launched June 1996 by a guy with a web site and a good idea, Amazon.com sells one of the oldest, lowest-tech products known to man books over the Internet.
The timing and the concept were perfect. Educated consumers the kinds of people who buy books like self-service channels and like using technology too. Books are simple, inexpensive, off the shelf items, the kinds of things that sell well in an efficient self-service channel such as the Internet.
The Internet is a cost-effective medium, which has enabled Amazon.com to offer highly competitive prices. Since there is no physical bookstore to keep stocked with inventory, the company has been able to offer a virtually limitless selection of books, most of which are available on 1-3 days notice.
As a result of all these fortuitous circumstances, Amazon.com has emerged from thin air into a market value of about $3.6 billion in September 1998 in a period of three years. That was about the same market capitalisation as Border's Group and Barnes and Noble the established booksellers with real, physical stores and well-branded retail identities combined.
Here are a few other examples of how channel innovation has seeped into unsuspecting industries:
-
People said for many years that personal computers couldn' be sold over the phone. These products are too complex and require too much handholding; they will always require a local dealer. Dell Computer took a different position, that telemarketing is an ideal, low-cost medium to deliver what essentially has become a commodity product.
Compare Dell' growth to, say, Merisel or Intelligent Electronics. Maybe small PCs really have become commodities that can be sold effectively through low-cost channels. Going further with this idea, though, IBM recently sold a mainframe computer, the most expensive, complicated capital investment most companies ever make, over the phone.
-
Pagers were supposedly specialised products, part of a telecommunications solution, that could only be sold through a specialty retailer or a direct sales representative. Motorola is selling a ton of them through WalMart.
-
Life insurance is a tough product to sell; perhaps no other product requires as much explanation, handholding and face-to-face convincing. Unless you'e Veritas, one of the fastest growing insurance companies, who is advertising in the media to generate incoming calls and is closing life insurance orders with low-cost telesales representatives.
-
The automobile is another product that' tough to sell. You need a dealer to explain the myriad complex options, safety features and different models. You especially need a dealer to keep margins up by talking customers into paying inflated MSRP prices and helping indecisive people make the decision to part with their hard-earned money.
-
On the other hand, there' AutoByTel, which uses the Internet to connect buyers who already know what they want and are ready to buy, with pre-selected dealers who offer no-haggle prices. AutoByTel has been used by over a million customers since its introduction in 1995 and processes over 100,000 requests and sources over $500 million in vehicle sales per month.( Auto-By-Tel web site, 28 May 1998 and 18 October 1998.
-
Merrill Lynch' whole value proposition is based on the idea that it is a high-value-add, high-touch financial services partner. Its well-compensated sales executives manage personal client (never customer) relationships. So where does a huge volume of its business come from nowadays?
The Cash Management Account (CMA), basically a simple, do-it-yourself checking and credit card account that also handles investment transactions. CMA accounts are advertised in business magazines and processed through inbound call centres; accounts can be opened through the mail with little or no contact between customer and broker.