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Wednesday, April 06, 2005

The Internet & The Rise Of The Consumer Power

The Economist magazine has a 14-page spread this week about how the internet has finally made consumers king,after more than 125 years of retailers giving lip service to the notion that customers are king,now they really are because they can arm themselves with all the information they need before going into a store to make a purchase. Ford reports that 8 of 10 car buyers already know the model they want and the price they are willing to pay before going to a dealership.As importantly, consumers can now have a greater voice in influencing the development of new products by using the internet, email and blogs to reach product developers with their opinions. Excerpts with edits:

The choice of products and services available is multiplying, but at the same time consumers have become more sceptical about claims made for products.In today's marketplace, consumers have the power to pick and choose as never before.This new consumer power is changing the way the world shops. The ability to get information about whatever you want, whenever you want, has given shoppers unprecedented strength. In markets with highly transparent prices, they are kings.The implications for business are enormous: threatening for some, welcome for others. The huge increase in choice makes certain brands more valuable, not less. And as old business divisions crumble, a strong brand in one sector can provide the credibility to enter another. Hence Apple has used its iPod to take away business for portable music players from Sony; Starbucks is aiming to become a big noise in the music business by installing CD-burners in its caf├ęs; and Dell is moving from computers into consumer electronics. More than three-quarters of mobile phone buyers in the US do their research on the web, even though only 5% buy online, says John Frelinghuysen of Booz Allen Hamilton, a firm of business consultants.

The internet is also becoming a lot more sophisticated as an advertising medium, beyond banner ads and pop-ups.Through means like adsense, the advertiser pays only if someone clicks on his links. This makes the results of search advertising reassuringly measurable,as tracking how many people go on to make a purchase is relatively easy. Google is beginning to work like an advertising agency, placing small text-based ads on other people's websites on behalf of its clients and splitting the revenue with the website owners. Google's software scans the sites to match the ads it serves up to the site's content.Local search could be the next big moneyspinner on the internet. Some changes in consumer behaviour that were already under way "media multi-tasking": using different media at the same time - with enormous implications for advertisers and programmers - It used to be that they were competing to get you to turn on the television. Now the TV may be on, but they are competing to keep your attention on the TV as opposed to the computer screen, the magazine or the iPod.Consumers are spending more time with media of all kinds: currently about ten hours per person per day in America seems to be the average.

Amazon, which has long evolved from an online bookseller into a mass retailer, uses a form of behavioural targeting by suggesting products its customers might like, based on their past purchases. Jeff Bezos, Amazon's chief executive, was among the first to spot that the transparent pricing and product information the internet was able to provide would allow people to shop just about anywhere. The trick was to make it easier for them, so Amazon's website now operates as a shop front for lots of other companies too. And it gives customers the chance to read not only the sales blurb but also other customers' comments on the products.But nowadays a web search can turn up all sorts of skeletons in the cupboard, especially from news groups where people post comments, from online journals (called "web logs" or "blogs") and more recently from "podcasting", in which individuals produce their own audio programmes for others to download to their Apple iPods or other MP3 players. Video versions of this are sure to follow. The rise of consumer power can best be charted through three industries: packaged goods, consumer electronics and cars. In each of these three very different categories consumers carry increasing clout. As the cost of the product goes up, they spend more time and effort considering which make and model to buy. The battle for their attention and money begins at the supermarket. An extremely well analysed article. Together with longtail effect, the markets are changing for sure - exciting times lay ahead.

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