To avoid becoming a "dot-bomb", organizations must carefully evaluate their internet strategy by addressing key issues. They must consider how their brand, management, operations, and equity will be impacted. Specifically, they need to determine if their brand naturally extends online, if management has the needed skills, if systems can support online operations, and if outside capital is required. Organizations must also understand the strategic implications an online channel may have on their existing channels to avoid conflicts that can dissatisfy customers. Failure to properly evaluate these issues can lead organizations to pursue online initiatives without a sound strategy, wasting cash and losing shareholder support.

1. How to Avoid Becoming a “Dot-Bomb”
JULIAN CURTISS (IMM JOURNAL OF MARKETING, VOLUME 7, NO. 3: 2001)
INTRODUCTION EVALUATING THE INTERNET CHANNEL
According to Corey (Industrial Marketing: Cases & To arrive at a sound decision on its Internet strategy the
Concepts, 4th Edition) “a distribution system is a key external organisation must understand the following issues:
resource. Normally it takes years to build and is not easily
changed”. The reason for this is that like all strategic areas of 1. Brand
the organisation, it becomes part of the organisational 1.1. Does the brand extend naturally to the Internet?
organism. Distribution channels are intended to deliver more 1.2. Will we need to price differently on-line to remain
of the organisation’s products or services to its customers competitive?
than the organisation could, at a lower cost than what it 1.3. Will we target a different customer base or offer a
would cost the organisation to do it itself. different product on-line?
2. Management
EVALUATING DISTRIBUTION CHANNELS 2.1. Do current executives have the skills and
What many organisations fail to address when investigating experience needed to pursue the Internet channel?
the possibilities of an Internet based distribution channel is 2.2. Are they willing to judge the Internet initiatives by
the effect that this can have on the sensitive strategic balance a different set of performance criteria?
that already exists in the organisation. As with any 2.3. Will there be major channel conflict?
distribution channel the organisation needs to understand 2.4. Does the Internet fundamentally threaten the
five core issues: current business model?
1. How much additional revenue will be generated that 3. Operations
can be attributed solely to the new channel; 3.1. Do our distribution systems translate well to the
2. By implication, to what extent will the new channel Internet?
cannibalise the revenue from existing channels; 3.2. Do our information systems provide a solid
3. By implication, what degree of conflict will this create; foundation on which to build?
4. To what extent will this new channel decrease the 3.3. Does either system constitute significant
existing distribution costs; and competitive advantage?
5. To what extent does the exiting channel represent a 4. Equity
sustainable competitive advantage? 4.1. Are we having trouble attracting or maintaining
talented executives for the Internet division?
To illustrate this consider Tupperware. They have made a 4.2. Do we need outside capital to fund the venture?
conscious decision not to sell their products through the 4.3. Is a certain supplier, distributor or other partner
Internet, even though as a commodity, their product set lends key to the venture’s success?
itself well to this form of distribution channel. The reasons
for their decision are as follows: Addressing these issues will help the organisation determine
1. The nature of their distributors: Most Tupperware the viability of an Internet channel and the strategic
sellers are the type of people who enjoy the nature of implications of it. Failure to understand the dynamics of this
this type of distribution and, therefore, Tupperware channel can lead to a great deal of customer dissatisfaction.
competes with other products utilising this channel, Consider the Mweb/ABSA conflict. In response to ABSA’s
even though the products may be different in nature. If move into the Internet ‘game’ Mweb has restricted access to
it sold its products on the Internet, it may retain its all the Multichoice websites it hosts. While there is merit in
existing customers but the Tupperware distribution their contention that sites like Supersportzone, News24 and
channel would immediately switch to selling other M&G Online contain ‘value-add’ and proprietary
products and Tupperware would lose its access to the information, many other sites like Mnet, DSTV and Carte
new business developed by its channel. Blanche, are using Mweb as a delivery channel for their
2. Competitive Advantage: Tupperware’s existing channel value add to their customers, who are not necessarily
represents a considerable competitive advantage as, Mweb’s customers. Their websites are also crucial in
among other reasons, this channel helps it maintain its delivery of marketing information. Very little of the content
reputation for greater quality. It is also difficult to contained on these sites can be considered ‘proprietary’.
compare its prices to its competitors as its products do When considered in terms of distribution theory, what Mweb
not sit next to their competitor’s products on the has done equates to a physical world distributor refusing to
supermarket shelves. distribute your organisation’s products to anyone but its own
3. Knowledge of their base: Databases are critical for one- customers. Alternatively, its like Mweb being prevented, by
to-one marketing. Unlike their competitors they know the Multichoice management, from advertising on SABC.
who is buying their products and what they are buying. This is not sustainable for the product manufacturer or the
While they could still build their database on the distributor. Worse than this however, is that Mweb is
Internet it wouldn’t be as large. creating dissatisfaction not for its customers, but for its
strategic business partner’s customers. Many Mnet
subscribers have complained that they consider access to
Mnet channel websites to be part of their ‘rights’ as
subscribers.
© TRANSACTION TECHNOLOGY SOLUTIONS 2009 -1- 16/01/2009 09:51:00 AM

2. HOW TO AVOID BECOMING A “DOT-BOMB”
ABSA’s move to the Internet has more to do with the ABOUT THE AUTHOR
Internet’s powerful capacity to deliver financial services to Julian Curtiss holds a Masters of
the market at a low cost. Business Administration from
Thames Valley University in the
This capacity lies predominantly in the fact that when one United Kingdom. He has more
‘buys’ financial services there is no need for the physical than ten years experience in IT
delivery of a product, which, especially in South Africa, is a business consulting. He worked
difficult challenge to overcome. for three and a half years in the
United Kingdom consulting to
FULFILMENT small and medium businesses.
The key fulfilment issue in Internet distribution is how to get In 1995 he returned to South
the goods from the supplier’s store into the home of the Africa where he worked for
consumer. There is an underlying expectation on the part of IBM South Africa, initially
the consumer (buyer) that he must go to the supplier. This is implementing JD Edwards
a critical differentiation from B2B eCommerce, where buyer software and then working as a Market Segment Manager,
demands that the supplier comes to him. For this reason, designing custom supply-chain solutions for the travel
B2B fulfilment is designed in this way, with B2B suppliers related services, agricultural and retail industries. After IBM
investing heavily in outbound logistics and B2B buyers Julian worked for FirstRand Bank in the capacity of
investing in in-bound logistics. Does this translate in B2C? eCommerce Strategist, initially in the Card Division of FNB
Not necessarily. and briefly thereafter for MC2, now Hyphen Technology
(Pty) Ltd.
Firstly, consumers do not have “in-bound” logistics. Julian is currently a regular contributor to the procurement
− How then can they be sure that there will be someone industry journals. He is also project managing the
available to receive the item procured? implementation of an eProcurement solution at a large
− How can they be sure the item delivered is what was financial institution.
ordered, if they cannot be sure they will be there when
delivery is effected.
− In B2C payment is effected when the goods are
despatched, not received, therefore what is the process
for repudiation on items received, charged and price
paid?
− What about the issues around access. In South Africa,
because of the crime rate, how does a delivery driver
gain access passed the electrified fence, gates, dogs and
petrified domestic workers?
Secondly, retail stores do not have outbound logistics
capabilities. The buyer uses his own vehicle for this purpose.
Where they do have outbound logistics it will be for their
existing B2B customers, who have in-bound logistics.
Thirdly, research shows that the minimum cost (to the
supplier) to deliver an envelope to a consumer is R18. This is
where the size, weight and dimensions of the item are
known. In the case of Internet shopping, the delivery
company may have to deliver a home gym, washing machine
and package of groceries to a particular address. The
groceries imply that certain items will be frozen, certain will
be wet goods, certain will be dry goods and most of them
will be perishable. What therefore is an appropriate vehicle
to send to carry out that delivery?
There are many issues and many dimensions to the Internet
channel. Many South African organisations have plunged
headlong on the Internet without careful consideration of the
implications of this move to their organisational strategy.
This is going to result in these organisations following the
“dot-bomb” trend of the United States as the organisations
run out of cash and shareholder patience. While some may
be able to hide these losses behind the apron strings of their
group companies, the rest will be left to the wolves in a
market that has little patience for strategic incompetence.
© TRANSACTION TECHNOLOGY SOLUTIONS 2009 -2- 16/01/2009 09:51:00 AM