Online Competitive Advantage (capturing unique information)

A profound shift in the basis of competition has occurred. Today, competitive advantage in many businesses lies in the ability to capture unique information about customers – information that is not accessible to other vendors. For example, airlines develop frequent-flyer profiles that are not accessible to other airlines.

Banks use information about balances and individual funds flow to market various financial products to their customers. Even grocers create loyalty card programs in order to build and act on proprietary profiles of their customers.

In infomediated markets, infomediaries hold these customer profiles on behalf of the customer and, subject to the customer’s privacy preferences, make them available to appropriate vendors willing to pay to access them.

By helping consumers capture and leverage their own information profiles, infomediaries will upend conventional markets. Through the mechanism of their profiling and agency services, infomediaries will “announce” their clients’ purchase intent (like brokers issuing a “buy” order on behalf of a client) and then organize the bidding environments to ensure that appropriate vendors compete for the client’s business.

In contrast to today’s vendor-centric conventional markets, infomediated markets will shift advantage to consumers by:

  • reducing consumers’ search costs;
  • connecting consumers with the most relevant vendors in a timely fashion;
  • extracting as much value for consumers as possible from vendors.

Markets in which power shifts to the consumer might be called “reverse markets”-these are markets in which customers seek out and extract value from vendors, rather than the other way around. In reverse markets, consumers can easily switch vendors-the new vendor can readily download the necessary information about the customer’s needs and preferences from the infomediary, without the customer’s providing it again. Consumers will also have much more information to evaluate the performance of specific vendors, data that will help overcome the moral hazard and information asymmetries that plague so many consumer markets today. The perceived risk of switching vendors will therefore decline.

Infomediaries will create mechanisms for consumers to aggregate purchases of replenishment products and solicit vendor bids for this business. What if, for example, the infomediary bundled the bulk of a family’s grocery purchases for a one-year purchase contract to be awarded to the lowest bidder? What if the infomediary bundled a family’s grocery purchases with those of 50 other families in the same town?

Today, vendors dedicate the vast bulk of consumer marketing expenditures (about 70 percent) to preemptively capturing the attention of the consumer in advance of the purchase. In reverse markets, customers will shun this kind of intrusive marketing. Successful marketers will learn how to list themselves effectively in search environments, how to engage the consumer at the time of purchase, and how to tailor products and services in ways that reduce incentives for switching to other vendors.

In the process of redefining marketing, reverse markets will also force vendors to rethink the role of brands and to redeploy marketing spending. This redeployment will have profound effects on a broad range of businesses that depend on advertising and promotion expenditures from product and service vendors, including television, radio, newspapers, and magazines, as well as sports franchises, retailers, and agents who represent celebrity talent.