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Internet
Marketing:
Separating
Winners and Losers in the E-Commerce Battle
Like
the emergence of commercial radio stations in the 1930’s,
some internet companies are struggling to create a business
model that transforms potential into profit. Some like boo.com
(see case study), Letsbuyit and Breath have been high-profile
failures. Yet there are others such as Centrica (which owns
the Automobile Association and the Goldfish financial services
brand) and Tesco (internet grocery shopping) which have
managed to ride the internet roller coaster well.
The
key question is what distinguishes the best and worst online
companies. Work by Price Waterhouse-Coopers researchers
provides some clues. A key ingredient is the ability to
control advertising, marketing and associated overhead costs.
Some companies have let such costs exceed revenue – in some
cases firms were spending £1.25 to generate £1. A crucial
factor is to limit such costs to sales to around 64% of
revenues. The main differences are:
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Survivors
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Strugglers
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- High
gross margins (around 82%)
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- Gross
margins 65% or less
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- Sustain
business without needing to consume cash
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- Use
up cash at a rate where a turnaround is necessary
to avoid bankruptcy
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- Have
a long track record and experienced management
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- Short
track record and inexperienced management
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- Operate
in specialist areas where rivals have difficulty
competing
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- Operate
in areas where it is easier to compete and little
expertise is needed
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- Spend
less to achieve sales by controlling costs
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- Spend
heavily with over £1 needed to generate £1 in
sales
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Based
on: Cassey, J. (2001) ‘£60bn wipeout for Europe’s dotcoms’,
The Guardian, February 1, 24; Connon, H. (2001) ‘Did bricks
buy good chicks?’ The Observer, February 4, 9
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