Marketing dollars are shifting

Reverse markets enabled by infomediaries will shift the relative impact of different kinds of marketing programs, driving vendors to redeploy their marketing spending.

Given the opportunity to connect with new customers in a low-cost manner, marketers will shift spending from a less-targeted image- or brand-building advertising to more targeted forms of marketing to leverage the infomediary’s accumulated profiles. Marketers will find that this more focused spending generates higher returns than conventional mass-market advertising.

In contrast to today’s direct-marketing programs, the infomediary’s marketing services will provide more detailed profiles of relevant customers and the opportunity to more quickly adjust the targeting and tailoring of messages.

The agent services of the infomediary will ensure that search and replenishment products or services are visible to the customer at the time of purchase. Targeted marketing services will provide vendors with the opportunity to reach relevant customers at an appropriate time for browsing or impulse-type product purchases.

Vendors will also develop new approaches to marketing designed to respond to the more demanding environments of reverse markets. For example, marketers will move beyond conventional direct-marketing approaches, which use transaction histories to target and tailor marketing messages, and which often intrude on the privacy of the “targets.”

Instead, marketers will begin to put in practice collaboration marketing, a term we’ve developed to describe techniques that address the unique challenges presented by the Internet and reverse markets. Three basic principles shape these techniques:

1. Vendors will focus on drawing people to them, rather than intrusively reaching out to them.

2. Vendors will maximize the value customers receive from the purchase and use of their products and services, by providing tailored help in purchasing and using those products and services.

3. Vendors will mobilize the resources of third parties and focus on assembling and packaging these resources to meet the needs of each individual.

Schwab is one of the pioneers of what we’re calling “collaboration marketing.” On its Web site, Schwab has assembled a broad range of third-party resources designed to be helpful to stock investors. Schwab’s Advisor Source connects investors with over 5,000 independent investment managers to provide them with detailed advice on their investment strategies.

The Analyst Center assembles a broad range of third-party information services relative to stock investment, delivered by companies like Dow Jones, Standard&Poor’s, and First Call Corporation. Automated analytic tools like Schwab’s IRA Analyzer help investors develop tailored investment strategies. And Schwab’s One Source service offers investors a broad selection of over 800 mutual fund products from a variety of third parties. While third parties provide much of the help delivered to the customer, Schwab:

  • becomes the architect of tailored service;
  • develops detailed profiles of the needs and preferences of each customer;
  • builds strong, trust-based relationships with its investors.

Through collaboration marketing, Schwab attracts new investors to its site and learns much more about these investors than a conventional discount broker ever would.
Of course, such efforts to be helpful may to some degree replicate the services offered by an infomediary. If they are done well, though, the infomediary might structure relationships with collaboration marketers to leverage its own resources and provide additional value to its clients. In this way, vendors will seek to build trust and customer-centric brands in an effort to increase customer willingness to seek out their offerings over those of other vendors.

For example, an infomediary might collaborate with Schwab to provide tailored investment help for the infomediary’s clients. The infomediary would strengthen its broadly based customer-centric brand by helping its clients connect with specialized environments like those being created by Schwab, especially when these environments organize the resources of a broad array of third parties. Schwab would benefit from the references provided by the infomediary and, in the process, help build its own customer-centric brand focused on understanding the investment needs of individual customers.

As marketing expenditures are redeployed, many of the businesses now emerging on the Internet are going to feel the effect. Regardless of the Internet business model involved-content aggregators, transaction aggregators, virtual communities, or portal businesses-the economics depend heavily on the assumption that the company will capture unique information about prospects and customers and will leverage this information to generate advertising revenue.

If this assumption is challenged by the infomediary, the economics of these business models rapidly deteriorate, and the potential for value destruction increases. What happens when an infomediary comes between these businesses and their customers and then helps the customer to establish his or her own profiles and use them in interactions with other vendors? What happens when marketers shift their marketing expenditures from broad-reach advertising to targeted marketing driven by the profiles accumulated by the infomediary?

Internet business models will have a limited set of choices about how to respond. They can evolve into infomediaries themselves. They can develop privileged relationships with an infomediary as part of an infomediary web, perhaps by providing a superior environment for placing targeted marketing messages and for learning more about the needs and preferences of the infomediary’s clients. In return for creating these environments, they might receive a share of the infomediary’s targeted marketing revenues.

Of course, the infomediary now becomes the source of revenue, rather than the marketer. The success of these business models will depend on their ability to create superior environments to engage infomediary clients and to enhance the shopping experience.

For example, these business models could organize large amounts of information that would help educate infomediary clients regarding specific kinds of products and services. Schwab, for example, is developing a transaction aggregator business model, helping to connect investors with a variety of investment products online. In the process, Schwab is employing collaboration marketing techniques to enhance its helpfulness to investors and is building a very rich information environment to maximize returns for investors.

Other transaction aggregators like Auto-by-Tel, CDnow, and Amazon.com are creating similar kinds of helpful environments for purchasers of cars, music CDs, and books. Other business models might develop superior skills in creating environments to merchandise products that are more likely to be purchased on impulse or as a result of browsing. A gardening virtual community or content aggregator might offer a compelling environment for merchandise gardening tools or books on gardening.

On-line businesses might also shift to other revenue sources, such as subscription, usage, or transaction fees. In general, though, these revenue sources typically make it much more difficult to build substantial scale. This is what your organization needs.

This dilemma goes beyond Internet business models. What about the various forms of traditional media that rely on advertising for support? Newspapers, for example, critically depend on classified advertising revenues for their profitability. What happens to classified advertising employment revenues when prospective employers can, with the help of an infomediary, seek out very specific candidates? For example, an infomediary might help an employer find people who, within a 50-mile radius of their business, possess the right background and skills and have expressed interest in seeing offers of employment from companies fitting the profile of the prospective employer.