Buyers will set the pace in tomorrow’s markets
It speaks volumes about the mindset of the modern marketer that when you say the phrase “one-to-one marketing”. It’s invariably assumed that the first “one” it refers to is the marketer and the second “one” is the consumer. It’s taken for granted, in other words, that the marketer is the active one doing the marketing to the passive one: the consumer, the target.
That may seem like a trivial point to make, but entire universes of thought often lie hidden within such tiny details. What, for example, would happen if the marketing process flowed in the opposite direction and consumers marketed themselves to companies?
This month, an experiment based on this idea begins. And minuscule as it is, it threatens (or promises) to expose most of the paraphernalia of modern marketing, selling and distribution as a gargantuan deadweight of unnecessary cost, sucking value from consumers and producers alike. Marketing may be turned on its head – literally.
The experiment comes from a start-up called Request, a new venture which promises to act as a sort of payment-by-results commercial Dateline, a matchmaker, aligning the desires and characteristics of buyers with the selling criteria of sellers. And it does this in a way that shortcircuits both the seller’s normal marketing and distribution processes and the buyer’s normal searching and shopping processes. In doing so, it cuts potentially vast costs out of the system.
Here, in simplified form, is how it works. Mr Smith requests an 85 per cent mortgage (hence the name Request). Request then creates an on-line profile of Mr Smith (income, type of mortgage being sought, current circumstances, risk profile, current needs etc), and matches his characteristics to a parallel databank of mortgage sellers, who also provide Request with a list of the products they want to sell, their target market, lending criteria and so forth.
Where the criteria of buyer and seller meet, Request facilitates an introduction, giving Mr Smith a list of every seller’s offer. Whoever Mr Smith chooses then pays Request a pre-agreed fee (based on the money he has saved from his normal customer acquisition costs). Request takes a slice of this fee, and passes the rest back to the consumer. Result: the seller’s customer acquisition costs are reduced, and the consumer gets a keener price for exactly the same product and brand.
This last fact is the crux of the matter. Mass marketing and mass distribution have played a vital role in modern wealth creation by helping to create critical mass and economies of scale for mass producers. But the flip-side of this system is that its approaches to marketing, sales and distribution are terribly wasteful. As we know only too well marketers pay enormous sums to advertise and promote products to consumers who just aren’t interested. Take men and TV tampon ads, for example. Or junk mail. As David Grafton, managing director of Equifax Decision Solutions notes, “direct marketers get very excited if they achieve a two per cent response rate. There is no other industry in the world that congratulates itself on getting it 98 per cent wrong.”
And things like these add up. Thus according to ECR Europe, the advertising, promotion and other direct selling costs of the average European grocery product represent one third of its final selling price. Which is ridiculous. Likewise, it now costs as much to take a car to market as it does to assemble it. Which is crazy. And so on.
In the US, 50 per cent of all books that are ever printed are pulped. But they have to be printed just in case a punter walks into a book store and asks for one.
But once the producer push process is reversed, huge costs fall out of the system. Which is what Request is about. As chief executive Barry Hill comments: “Our business mission is to remove waste from the marketing and distribution process. Passing value back to the customer is the name of the game, and the winners will be the ones who do so most directly.”
Request itself starts in a small way this month, but it plans to offer mortgages, home contents, building and motor insurance, loans, telecoms and other services from 40 to 50 companies by the New Year.
It won’t make much of a dent on the establishment for a long time. But the core idea is a good one. According to a recent McKinsey report, experience so far suggests that Internet-based electronic markets connecting buyers and sellers in new ways “can capture savings of ten-to-20 per cent on sales and deliver lower prices to buyers… The development of electronic markets is inevitable in many if not most industries. It will be driven by the release of value through transaction savings and the shift of power to buyers.”
But as Request shows, not all “reverse-the-flow” marketing systems need to be high-tech. Yes, its back-office databases and extranets might be awesome, but what the consumer is offered is incredibly simple and low-tech: Request currently recruits its consumers through reader offers in newspapers and deals with them on the phone.
The basic idea of reversing the flow can be widely extended. Why, for example, doesn’t the AA set itself up as a buying club, using the combined buying power of 9 million members to bypass dealers and buy direct from car manufacturers? How much money could it save both manufacturers and members in the process? There is a powerful win-win logic here. If marketers can cut their marketing costs and consumers get lower prices, then who’s complaining?
Until recently, such nostrums were just a dream. But now they are becoming a reality. A sign of the times: last month Equifax, a huge information services company with revenues of $1.4bn (848m), snapped up a 40 per cent stake in Request.
Equifax now has a strategy of “becoming a value-adding infomediary between buyers and sellers”, says Grafton. “Many traditional markets will not be the markets of the future. And we need to learn how the market of the future will work.”
