Marketing with Information Technology

(Contribution by Todd Posey as part of the Interactive Marketing and Information Technology Class)
The world is flat. The cost of information and digital content has radically dropped and is now close to zero. In the worlds of Thomas Friedman, “Whatever can be done will be done.” Since the cost of information has dropped so much and the trade-offs of richness and reach have changed, this makes the connection to the customers from the manufacturer or originating organization significantly easier and less costly. One implication of this is the increased incentives for manufacturers to distribute and communicate directly to the end customer. The only aspect of the value chain that a manufacturer cannot compete on now is the physical delivery, or distribution of the item. For high margin products with low shipping costs, the incentive is high to sell directly to the customer. For low cost, low margin products, traditional channels such as Wal-Mart offer economies of scale that cannot be replaced. Yet even in this situation it is hard to name a major brand that does not have a website to increase richness.

In traditional businesses there has always been a frustration with the richness and sales services offered by retail and other distribution channels. Retailers tend to be more order taking in nature and less sales based. This causes the manufacturer or originating organization in many cases to take on the role of selling the product and the retail establishments just take on the role of distribution. Traditionally these companies were forced to spend on expensive forms of media in order to get the reach necessary to be marketable. The richness was limited to the packaging because print media TV and radio advertising does not provide affordable richness. This has created natural barriers to entry that require larger economic resources to overcome. New products were extremely difficult to do on a national level without substantial investment. With the reduction of the cost of information, reach and richness can now be offered through the web. This is likely to have a major impact on the number of companies that go direct to the customer. A retailer’s value to a manufacturer as a distribution center has lowered as a result. The success of Dell is a good example of the advantages that going direct has to offer and how richness and reach can be affected by the internet.

This reduction in the cost of reach and richness opens the doors to new markets for products and services that are smaller players in the value chain. Niche markets can now compete outside large metropolitan areas because the economies of scale required to stay in business can be met by creating a national market on the web instead of relying on local customers. One such example is Christmas tree stands. There are a number of simple traditional products available for low cost at the typical retail channels. There are also more expensive models that offer better stability, easier set-up and other hard to find features that are too expensive for the masses, but offer real value propositions. These products can be found on the web and in specialty stores that would for all intensive purposes be unavailable to me in Bennington, VT. Now they can be easily purchased by anyone who is interested. In this way, the information revolution is having a profound effect on the variety of products available.