NONE: Re: ONLINE-ADS>> Differentiation/revenue via community/brand

Re: ONLINE-ADS>> Differentiation/revenue via community/brand
Tue, 27 Oct 1998 04:55:41 -0600 (CST)


>Based on Prof. Rayport's research of traditional brick and
>mortar service businesses, revenue per employee is directly
>related to length of tenure. Namely, businesses with high
>turnover have less productive employees than business with
>low turnover (all things being equal). Additionally,
>customer satisfaction is directly related to employee
>retention. Specifically, high-scoring customer service
>stores averaged 54% turnover, while low-scoring customer
>service stores averaged 83% turnover (with data points along
>the entire spectrum). Finally, employee job satisfaction is
>related to high customer service. My distallation of Prof.
>Rayport's conclusions: In most brick and mortar service
>businesses, employees ARE the competitive advantage.

Note that Prof. Raypot's conclusion was based on the
assumption: "all things being equal". There are two ways to
hold "all things being equal". One is to take all the
effects contributed by all other factors out of the
relationship between the two variables studied. A partial
correlation works here. (As we try to understand how an
attribute of web design influences a visitor's overall
evaluation of a web site.

Another way is simply to assume "all things being equal".
Based on the nature of this study, I think this is the case
in Prof. Rayport's study. So the question is: are all things
equal? Basically, an academic researcher makes such
assumption to make his research model simple and focused.
His goal is to understand whether there is a relationship
between two variables. (Or several variables in this case.)
However, a marketer cannot afford to make such an
assumption. In the real world, a marketer's goal is to find
the most important (or strongest) relationship between his
bottom line and other factors.

For example, in an academic research, customer satisfaction
significantly influences a company's revenue because the
estimated coefficient is significant. However, the R-square
is only about 0.04 (In plain English, customer satisfaction
contributes to 4% of your revenue variations. Will you spend
1 million dollars to conduct customer satisfaction or spend
this one million dollars to do something else that
contribute to perhaps 24% of your revenue variation? (please
read the article "Strategic customer satisfaction study is
not a good strategy" at

(Please note that I did not say that customer satisfaction
is not important.)

Behind this "all things being equal" assumption, there is
another assumption to draw the conclusion that "employees
ARE the competitive advantage". This hidden assumption is:
all other things are not competitive advantages.

For example, let's compare Wal-mart with another department
store - say Sears or a more luxury department store. Which
store gets higher customer satisfaction rate? Which store
may have higher employee retention rate? Which story may
have higher revenue per employee? (I don't know the number.
However, if Wal-mart has lower revenue per employee, I
suggest Prof. Rayport select another revenue measurement to
define the success of a company.)

The fundamental competitive advantage of Wal-mart is its
segmentation strategy instead of its employees.

All things are not equal!

Let's move to the Internet.


>If you agree with Prof. Rayport's analysis, all these Web
>businesses have a competitive advantage BECAUSE of their
>context. And context is something that is difficult to
>replicate in many or all instances (or why isn't BMG beating
>CDNow, or Barnes and Noble beating Amazon or GM beating
>AutoByTel, etc).

If the meaning of CONTEXT is as defined by Prof. Rayport as
everything except infrustructure and content, no one can
disagree with it. However, is CONTEXT everything?

If all things are equal, how many web businesses use "viral"
marketing strategy? How many create interactive databases
and how many have delivered better shopping experience to
their visitors? However, how many of them are as successful
as CDNow, Amazon and AutoByTel.

As I discussed in the article "How much do you know about
your customers?" (
There are three different competitive advantages for a web
business: 1. It got online much earlier than its
competitors; 2. It has much stronger knowledge and
experience than its competitors; 3. It understand its
customers better than its competitors. It is so obvious why
CDNow, Amazon and AutoByTel have stronger brand name than
their competitors.

CONTEXT is not their competitive advantage.

Competitive advantage should be studied in an environment
where all things are not equal. Currently, WebCMO conducts a
survey to understand what contribute to the success of a web
business. We assume all things are not equal and try to
catch up WHAT the most important factors are in determining
the success of a web business and How important they are.


Tim Lee
Director of Research
A site dedicated to web marketing research.
WebCMO Digestófree e-zine about web marketing research & strategy

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