A very interesting article that gives an insight on the power of the internet..
Power at last
From The Economist
Armed with the internet, the customer has finally got on top “WHEN a customer enters my store, forget me. He is king,” decreed John Wanamaker, who in 1876 turned an abandoned railway depot in Philadelphia into one of the world's first department stores. This revolutionary concept changed the face of retailing and led to the development of advertising and marketing as we know it today.
But compelling as that slogan was, in truth the shopper was cheated of the crown. Although manufacturing efficiency boosted the variety of goods and lowered prices, advertising provided most information about products. Through much of the past century, ads spoke to a captive audience confined to just a few radio or television channels or a limited number of publications. Now media choice has exploded too, and consumers select what they want from a far greater variety of sources—especially with a few clicks of a computer mouse. Thanks to the internet, the consumer is finally seizing power.
As our survey in this issue shows, consumer power has profound implications for companies, because it is changing the way the world shops. Many firms already claim to be “customer-driven” or “consumer-centric”. Now their claims will be tested as never before. Trading on shoppers' ignorance will no longer be possible: people will know—and soon tell others, even those without the internet—that prices in the next town are cheaper or that certain goods are inferior. The internet is working wonders in raising standards. Good and honest firms should benefit most.
But it is also intensifying competition. Today, window shopping takes place online. People can compare products, prices and reputations. They can read what companies say about products in far greater detail, but also how that tallies with the opinions of others, and—most importantly of all—discover what previous buyers have to say. Newsgroups and websites constantly review products and services.
This is changing the nature of consumer decisions. Until recently, consumers usually learned about a product and made their choice at the same time. People would often visit a department store or dealership to seek advice from a salesman, look at his recommendations and then buy. Now, for many, each of these steps is separate. For instance, Ford is finding that eight out of ten of its customers have already used the internet to decide what car they want to buy—and what they are willing to pay—even before they arrive at a showroom.
Of course, the amount of time people spend researching and checking prices tends to rise in proportion to the value of the product—and cars are expensive. But consumers are displaying similar behaviour when they purchase other things, such as digital cameras, mobile phones or fashionable clothes. And while supermarket shoppers may not research in this way all the individual items they drop into their trolley, many suppliers of the packaged goods sold in supermarkets are already acutely aware that their customers, too, are better informed than ever before about the value or health implications of the products they sell.
Reaching these better-informed consumers with a marketing message is not easy, and not only because they are more sceptical. Many people now spend as much time surfing the web as they do with television, magazines or newspapers. The audience for advertising is splintering and its attention is harder to attract. On top of that, many people are arming themselves with technology to avoid marketing messages, such as pop-up ad-blockers for the internet and personal video recorders that make it easy to skip TV commercials.
Despite the flood of product and price information suddenly available, consumers are unlikely ever to become wholly calculating. Tastes and fashion will differ. Brands are likely to remain popular. But brand loyalties are weakening. A slip or delay can cost a firm dearly and hand the advantage to an opportunistic rival. This is how Apple's iPod snatched from Sony the market leadership in portable-music devices.
Many firms do not yet seem aware of the revolutionary implications of newly empowered consumers. Too many companies relaxed after the bursting of the dotcom bubble, assuming that the online threat had faded. This was a mistake. It is true that the vast majority of people still go to shops for most purchases (though online sales continue to grow). Before doing that, however, most have used the internet. More than 90% of people aged between 18 and 54 told America's Online Publishers Association in a survey that they would turn to the internet first for product information. The differences between the virtual and the bricks-and-mortar worlds do not worry consumers. But they should worry companies. Many consumers first encounter a firm through its website, and yet for too many firms, their online presence remains a low priority.
By contrast, some businesses have embraced the internet wholeheartedly, and been rewarded for it. Dell has by-passed retailers and used direct sales to become the world's leading supplier of personal computers. The web is also transforming the travel business, giving consumers the power to book flights, hotels and cars directly. And it has allowed hundreds of thousands of small businesses, from mom-and-pop stores to traders of collectibles on eBay, to reach a global market.
The explosion of choice that followed the opening of Mr Wanamaker's store is minuscule compared with the cornucopia already provided by the internet. But the consumer's choice is about to become even greater. Internet search firms such as Google, Yahoo! and MSN are now falling over each other to offer more localised services. These promise to open up a new goldmine in search advertising. And soon this facility will be available not just on PCs at home or work, but on mobile phones. At a touch, consumers will be able to find a local store and then check the offers from nearby outlets even as they browse the aisles, or listen to a salesman. When that happens consumers will truly be kings, and only those firms ready and able to serve these new monarchs will survive.
