New marketing models: Simple in theory, difficult in practice

It’s time to take a look back at the promises made by the Internet about how it would change marketing.

Many of you probably subscribed to Internet magazines promising to reveal the secrets of e-business. Fast Company warned you to act quickly or else die, and Business 2.0 promoted ideas about New Rules, New Ideas, etc.

We see that these magazines are full of hypocrites who now talk about going back to the basics. Not sure? Fast Company now promotes the idea of slowing things down. Business 2.0, which claims to be the “secrets” behind the new economy, now focuses on basic ideas that you can find in any business magazine without advertisements.

You can see that we are quite skeptical about the value of magazines. Before you listen to the visionaries or gurus who will soon be predicting what the future holds on the Internet, take a look at some of the marketing ideas that have been heavily promoted over the last year.


The Priceline model was the main cheerleader. Priceline was supposed to put power in the hands of consumers and take it away from corporations. Priceline may have done what it could to disintermediate the middleman, but the model is questionable.

We’ve already said that innovative pricing models might survive. But will they require a fundamental rethinking of marketing’s basic tenets? We don’t believe so.

Why? By focusing solely on price, these models create a lack of brand loyalty that manufacturers are unwilling to tolerate. Second, innovative pricing is only relevant when there are few substitutes and a high-involvement purchase (think of “auctions”). People are now trying to apply this highly specialized model to product categories without these characteristics. Why do they do this? The Internet makes this theoretically, if not actually, possible. DISTRIBUTION Arrangements

It was also overhyped that the Internet would completely reorganize the basic distribution system, resulting in new rules. As Amazon found out, it was a foolish assumption to assume that channel functions such as warehousing would be rendered obsolete. Retailing was always difficult, not because technology wasn’t available.

The company has warehouses and a strong web presence that dominates the Internet. Examples include Lands’ End. Brick-and-click shops and niche pure internet plays, like, that act as broks – similar to eBay will likely survive.

Homegrocer and Webvan were supposed to eliminate auto dealers (they aren’t), while Webvan was supposed to eliminate grocers (the grocers do fine).

It is important to note that the Internet has not fundamentally altered most aspects of distribution channels. It is theoretically possible but not practical. E-WEBS

Eliminating traditional distribution relationships, such as those between buyers and suppliers, was also expected to lead to the formation of new business models. This view is typical of net enthusiasts and even promoted by respectable business media (like Harvard Business Review). It seemed to be oblivious to power, incentives, loyalty, and other human desires.

Consider Priceline’s problem with groceries. Industry Standard stated that their relationship with WebHouse, which would supply the groceries, was a gamble right from the beginning. Manufacturers were expected to cover the cost of a discount, while sponsors provided promotional offers. WebHouse cited brand loyalty and customer data as a payoff for manufacturers. However, major companies such as Kraft and P&G took a long time to jump on board. This left the company with the task of subsidizing groceries for consumers.

Would you join P&G if all they offered you was brand loyalty based on low prices and customer data you could obtain elsewhere? Evidently not. Even though a new eWeb was possible, the incentives don’t exist.


Auctions and all other forms of B2B efficiency maximization are now suffering the same fate. Nirvana, the virtual marketplace where buyers and sellers would transact at the best prices, was supposed to exist.

This has two problems. First, many relationships between buyers and suppliers are not about price, but rather, they’re about relationships. Focusing on price kills relationships and puts at risk people who have been doing their jobs to build those relationships. They are not motivated to make this work.

Second, sellers do not want to reveal their pricing models to competitors. These pricing models are now clearly visible to the competition. Years of competitive exchanges don’t easily yield to cooperative exchanges.

Third, we can see that many companies are asking themselves, if the exchanges are good, why aren’t they doing it themselves? Take the recent example of Trane, which opened its private exchange rather than using an electronic marketplace. The fancy Internet exchanges could end up looking more like VPNs (virtual private networks).

Let’s not forget, with all the buzz about peer-to-peer networks being the next great exchange, that studies have shown free file-sharing arrangements (a.k.a. al Gneutella) lead to rampant free-riding. Some people share, and others ride for free. This system is not likely to last long.


Regis McKenna—the “founder of modern marketing” hailed by the business press but who had little to do with it—has predicted the end of marketing in an interview he gave recently and in a forthcoming book. Brands are expected to die, and the CIO/CEO will handle marketing.

Brands will not die, regardless of what McKenna claims. Period.

In the early 1900s, when all products started to look alike, and people were looking for a way to make decisions in an increasingly complex world, brands became popular. Do we really believe that the products look more distinctive and unique? Hardly. Do we really believe that purchasing decisions are becoming simpler?

Regis is talking to whom these days, considering that CEOs are taking over marketing. It’s probably the same crowd of technology people he has been hanging out with for years. They don’t look like other companies, and they never had marketing departments. He must be referring to the demise of marketing at technology companies, not those who have been practicing solid marketing for decades.

Suppose CIOs or CEOs are given the responsibility of marketing, and they have no formal marketing training. In that case, these companies will go down the same path as the thousands of startups that failed this year because marketing was a mere afterthought. Let’s not hope so!

Leave a Reply