13/10/2014 The impact of E-commerce on traditional business value.

- Wednesday, 10th August 2005 at 4Hoteliers

http://www.4hoteliers.com/features/article/389 1/8
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The impact of E-
commerce on
traditional
business value.
By David Haigh ~ CEO Brand
Finance plc
Wednesday, 10th August 2005

The hype surrounding the
Internet has been overstated.
Companies however, cannot
afford to ignore this market
and issues need to be
addressed before off-line
companies can compete and
take advantage of this
medium.
THINK New Ideas Fortune
500 research suggests large
established companies have
been slow to react, and then
poorly. Although 90% of those
companies had a web-site,
only 10% contained 2-way
interaction and 4% commerce
transaction. However the
strength of established
companies brands, their
reputation and overall financial
strength will enable them to
successfully hit back at new
cyber competitors and then
dominate the on-line market. It
is likely that only a select few
cyber-brands will survive
independently in the long term,
principally those companies
that have built early brand
equity and leadership (ie.
Amazon.com, E-trade and
FT.com).
Before established companies
dominate the market they must
consolidate their on and off-
line brand, pricing, strategy
and business model.
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13/10/2014 The impact of E-commerce on traditional business value. - Wednesday, 10th August 2005 at 4Hoteliers
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On-line consolidation
Internet consumers are an
affluent, educated and
lucrative market. According to
Total Research, a US based
research consultancy, Internet
consumers likes and dislikes
vary from the general
population. Although the
composition of the Internet
market may change it is likely
it will remain significantly
different to the population as a
whole. In branding terms, how
do companies target this
specific audience whilst not
diluting or confusing other
brand communication
messages received by
consumers using other
channels or a combination of
channels?
The three principal branding
options are to transfer the
existing brand on-line
(Barclays on-line), create an
entirely new brand (Egg
Prudential) or create a sub-
brand linked to the parent
brand (Smile The Internet
Bank of the Co-operative). The
appropriate strategy will differ
according to the sector, the
off-line brand value and the
degree of overlap with the off-
line business. If market
conditions are favourable the
first option is preferable.
In pricing terms, how do
companies offer products to
consumers via the net at a
lower price then through off-
line channels? Paul Edwards
of the Henley Centre illustrates
an example from the financial
service sector of the cost
savings that can be passed
on. It costs US banks one
dollar and eight cents to
process a transaction through
a cashier, 54 cents via the
telephone and a mere 13
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13/10/2014 The impact of E-commerce on traditional business value. - Wednesday, 10th August 2005 at 4Hoteliers
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cents via the Internet. This
reduction in cost allows
companies to charge lower
prices but can create
commercial problems. A dual
pricing structure will raise
serious questions from
consumers and the price
differentials may be impossible
to explain.
Internet branding
Concerns arising from possible
price and brand conflict that
has led many companies to
create new sub cyber-brands,
as evidenced in the financial
services sector with Egg,
Smile and Marbles.
This is a severe strategy.
Established brands have taken
years to build and generally
enjoy goodwill and brand
equity among a large
audience. The cost of building
a cyberbrand may be relatively
low in comparison to building
an off-line brand but is still
considerable. John Coleman,
President of San Francisco
based on-line agency Via Web
Design, estimates for a
business to business brand, it
takes $10 million to $30 million
to launch. According to
Forrestor Research, costs are
high, principally because
building a brand on-line
requires a persistent
presence. Robinson-
Humphrey estimate that it cost
Yahoo! $300million to build a
dominant brand and AOL
$2billion, a significant amount
as shareholders will agree.
To avoid this cost established
companies need to utilise the
awareness and equity of the
existing brand. Companies like
Tesco and WH Smith can
benefit from the strong brand
value they command in their
sectors. New brands lead to
13/10/2014 The impact of E-commerce on traditional business value. - Wednesday, 10th August 2005 at 4Hoteliers
http://www.4hoteliers.com/features/article/389 4/8
cannibalisation. However
established brands cannot
simply be transferred on-line. It
is much more complicated
than that. Stephen Neils, Co-
Founder and President of
Absolute Business, a US
based I-builder, states
Treating the web as just
another distribution channel
instead of seeing it as a
different medium with different
needs, backfires.
Although brands do not
guarantee success they help
achieve it. Company structures
and thinking however need to
adapt. Off-line companies
push their product, on the
Internet they need to pull their
customers through the
channel. Marketing emphasis
will change from mass
marketing to 1:1 direct
marketing utilising detailed
databanks and focusing on
customer service and
relationship building. Ram
Shiriram, Vice President of
business development at
Amazon.com, states
Amazons products are very
aggressively priced to begin
with but service is a very
important component of on-
line sales. Core competencies
may need to change to provide
adequate dynamic service and
business models will
undoubtedly have to react.
Internet channels will not
necessarily lead to increased
turnover and profitability. The
darling of e-commerce
Amazon.com lost $111million
US dollars at its last year end
despite achieving the highest
awareness amongst on-line
retailers in both the US and
UK. Despite poor financial
results for most on-line
companies the Internet as a
mainstream channel has
13/10/2014 The impact of E-commerce on traditional business value. - Wednesday, 10th August 2005 at 4Hoteliers
http://www.4hoteliers.com/features/article/389 5/8
arrived. It is a new business
channel suited to the time
conscious consumers. Brand
loyalty using interactive and
highly targeted marketing
techniques, such as
automated replenishment and
customisation, can secure
income streams. If one can
repeatedly order from Tesco
without having to do much,
value is increased and
customer migration decreases.
Conclusion
Brand evaluations will help
reconcile different business
channels and the brands
within them. A brand audit will
assist with brand transition
strategy from off to on- line
and enable companies to see
where brand value can be
increased. Some traditional
brands will not succeed on-
line, some cyberbrands will,
some brands will perform
equally well in both channels.
New business and marketing
models will have to be devised
and established companies
may find they need to split
their on and off-line operations
significantly to serve both
markets effectively. The high
street distribution will be
complemented, rather then
replaced, by the Internet and
must not be forgotten in the
rush to be on the net.
Although the value of
companies in share price
terms has been positive for net
friendly companies this bubble
is likely to burst. Value will only
be increased on-line if
structures, cultures and brand
associations can be molded to
suit the on-line marketplace.
The Internet will be a sizeable
and lucrative market and those
companies that can take
advantage of it will benefit.
However realism must ensure
13/10/2014 The impact of E-commerce on traditional business value. - Wednesday, 10th August 2005 at 4Hoteliers
http://www.4hoteliers.com/features/article/389 6/8
that we do not over estimate
what the Internet will do for
business. Eventually as the
market matures it will be seen
that local and established
companies will dominate as
they currently do in other
channels and that only a
handful of successful new
ventures will penetrate the
market to a significant level.
The Amazon.com will be the
exception, not the rule. Sorry
shareholders!
This article may differ slightly
from that published in
Marketing Business in March
2000.
David Haigh BA, ACA, FCIM,
MAE
CHIEF EXECUTIVE
OFFICER, Brand Finance plc
David qualified as a Chartered
Accountant with Price
Waterhouse in London. He
worked in international
financial management then
moved into the marketing
services sector, firstly as
Financial Director of The
Creative Business and then as
Financial Director of WCRS &
Partners.
He left to set up a financial
marketing consultancy, which
was later acquired by Publicis,
the pan European marketing
services group, where he
worked as a director for five
years. David moved to
Interbrand as Director of Brand
Valuation in its London-based
global brand valuation
practice, leaving in 1996 to
launch Brand Finance.
David is a fellow of the UK
Chartered Institute of
Marketing. He is author of
Brand Valuation (FT - Retail
and Consumer Publishing,
1998), Brand Valuation - a
13/10/2014 The impact of E-commerce on traditional business value. - Wednesday, 10th August 2005 at 4Hoteliers
http://www.4hoteliers.com/features/article/389 7/8
review of current practice
(IPA, 1996), Strategic Control
of Marketing Finance
(FT/Pitman Publishing 1994).
Davids most recent
publication was co-authored
with Gilson Nunes (Managing
Director, Brand Finance do
Brasil) and is titled Marca
Valor do Intangvel (Editora
Atlas, August 2003). This is
Davids first publication in
Portuguese and has been
released in both Brazil and
Portugal.
Brand Finance plc
Brand Finance is a specialist
consultancy dedicated to the
better understanding of
marketing finances. It is
entirely independent and offers
a highly professional approach
to marketing accountability
and brand valuation. Brand
Finance now has a presence
in eight countries, including the
UK, USA, Spain, Brazil,
Australia and Hong Kong.
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