NET GAINS - Profit from Transparency

By Mohanbir Sawhney

Sat, June 15, 2002CIO The Internet has ushered in the age of information democracy by shifting the balance of power toward customers. Nowadays, customers can compare prices through shopping engines such as DealTime and PriceGrabber.com. They can pit sellers against each other through reverse auction services like FreeMarkets. And they can get unbiased feedback on products and services through third parties like Amazon.com, BizRate.com and CNet. Information transparency is here to stay.

Transparency is a good thing for customers, but it seems to threaten suppliers. One of my favorite questions for executives is: If your customers knew everything about your products, your costs, your prices and your competitors’ offerings, would you be better off? Judging from the uncomfortable silences I usually encounter in response, most executives believe that transparency is an enemy of profit. Their reasoning: Customers will take advantage of better information to drive down prices and profit. Harvard Business School’s management guru Michael Porter echoes that thought. "The great paradox of the Internet," he says, "is that its very benefits?making information widely available; reducing the difficulty of purchasing, marketing and distribution; and allowing buyers and sellers to find and transact business with each other more easily?also make it more difficult for companies to capture profits."

But is transparency always a threat to profit? Will it set off a spiral of lower prices, intensified competition and commodified products? Not necessarily. I believe that transparency can be good for profit. To profit from transparency, companies need to understand two key principles about customer decision making. First, customers never buy solely on price, even though companies might think they do. Second, prices may be transparent to customers, but value often remains opaque. By making their value propositions visible to customers, companies can benefit from the democratization of information.

I recently participated in a conversation between the CEO of a midsize pharmaceutical manufacturer and a supplier of plastics who was trying to get the pharmaceutical company to switch to plastic bottles instead of glass. Plastic bottles seem to be as close to a commodity as one could imagine. Naturally, the conversation began with the pharmaceutical CEO asking if plastic bottles were cheaper. Being a good marketer, the plastics manufacturer pointed out that the price of the bottle should not be the sole focus of attention. First of all, he said, plastic weighs less than glass, so the transportation costs for the drug company would be lower. Second, plastic is not as fragile, so the breakage loss would be lower. Third, plastic bottles would save on labeling cost because labels could be imprinted directly. Fourth, being a local supplier, the plastics manufacturer would deliver more frequently in smaller batches, resulting in reduced inventory holding cost. On the negative side, the production line would run somewhat slower with plastic.


Loading...
Applications MarketSpace
Practical Approaches for Securing Web Applications
Enterprises understand the importance of securing web applications to protect critical corporate and customer data. What many don't understand, is how to implement a robust process for integrating security and risk management throughout the web application software development lifecycle. Learn more »
An Executive's Guide to Web Application Security
Since so many Web sites contain vulnerabilities, hackers can leverage a relatively simple exploit to gain access to a wealth of sensitive information, such as credit card data, social security numbers and health records. It's more important than ever to examine your Web application security, assess your vulnerability and take action to protect your business. Learn more »
Web Application Vulnerabilities
Security managers may work for midsize or large organizations; they may operate from anywhere on the globe. But inevitably, they share a common goal: to better manage the risks associated with their business infrastructure. Increasingly, Web application security plays a significant role in achieving that goal. Learn more »
Using ERP To Gain Competitive Advantage in a Tough Economy
For midsize enterprises, now is the perfect time to invest in a significant IT expansion - despite the economic climate. Learn more »
Why BI is Ripe For Businesses of Any Size
Oracle's range of offerings to mid-size and emerging companies reflects its vision that BI and EPM solutions can be embraced by companies of all sizes. Learn more »
Oracle Accelerate
Ovum has been following Oracle's Accelerate program over the last couple of years because they thought it is a smart strategy for penetrating the upper mid-market. Learn more »
The New Age of ERP
Not only can small and mid-sized companies reap the renowned ERP benefits of greater agility, increased business visibility and measurable ROI. Learn more »
 
SPONSORED LINKS
 

CRM Built for IT: The Executive Guide to Selecting CRM that Meets IT Needs

ROI of Application Delivery Controllers

White Paper: 4 Customer Service Myths

White Paper: Improve Agility with Operational Responsiveness

Removing the Barriers to IT Governance: How On-Demand Software Changes the Game

Cloud Computing--Latest Buzzword or a Glimpse of the Future?

A Balanced Approach to an Application Development Platform

Adobe® LiveCycle®solutions for intuitive user experience

10 Ways Excel Drives More Value from Your SAP Investment

What's New in SOA Suite 11g?

Unleash the Power of Java with Oracle JRockit Real Time

SOA Best Practices and Design Patterns

Application Grid: Ideal Platform for IT Consolidation

Ready to virtualize tier one applications? Check your virtualization maturity.

Learn how to provide complete Business Service Management.

Increase ROI of Your Application Portfolio

Return on Information: Google Enterprise Search pays you back. Get the facts.

VMware. The source for Business Infrastructure Virtualization.

ShoreTel tells businesses to untangle from competitors' complexity and turn to its brilliantly simple UC solution

See how AT&T can help protect your network.

Streamline IT Costs. Boost Performance with WAN Optimization.

Build your 1st app FREE with Force.com

TDWI checklist helps define data readiness for analytics. Download report.

eZine: A Roadmap to Reducing IT Complexity

Reduce risk, gain agility. See how Progress can help your business.

What's Next for Enterprise Resource Planning?

Gartner Magic Quadrant, Application Delivery Controllers 2009

White Paper: Managed Security for a Not-So-Secure World

SharePoint - Unchecked growth of content is unsustainable.

Focus Under Pressure: Why IT Governance Becomes Mission-Critical in a Down Economy

Should Your Email Live In The Cloud? A Comparative Cost Analysis

Adobe® LiveCycle® solutions for business process automation

Architecting Business Intelligence Applications for Change: The Open Solution

Increase UPS efficiency without sacrificing protection.

Unlocking the Mainframe: Modernizing Legacy System to SOA

State of the Data Integration Market

Enhance Customer Loyalty through Higher Responsiveness

Achieving Business Agility with Application Grid

Seven Ways ITIL Can Help You in an Economic Downturn

Four steps to populate your CMDB.

"Enterprise-Proven" is the Prerequisite for Enterprise SaaS Portal Solutions

AT&T Synaptic Storage as a Service. Expand on demand

Trend Micro ranked #1 against real-world malware. Read more.

Webinar: Jump-start your in-house e-discovery with Ringtail QuickCull from FTI Technology

Top Five CIO Challenges

Read the RSA report: Security for Business Innovation

64-page prescriptive guide to security, compliance, and IT operations.

A Clear View Toward Virtualization

Virtualization Technology as a Business Solution

The rules of infrastructure management just changed.

 
 
RESOURCE CENTER