No free lunch in the online world

18 Feb 2010

Strategic marketing specialist Professor Damien McLoughlin of UCD School of Business explains how the new digital landscape is forcing businesses to rethink how they use the internet to transform their business models.

How is the digital arena transforming the way we do business today?

Digital is changing the business environment in a very fundamental kind of way, but it’s not changing everything. It’s not changing how we use the core tools of business. One major transformation has been the access to information for the consumer. We tend to think of the impact of this as being to reduce prices, but I don’t see it like that. When we think of buying books or downloading albums the perception is they are cheaper online, but that’s not always the case. If you are buying a song on iTunes at 99 cent per song, if you buy a set of 15 tracks for nearly €15, that is pretty much the cost of a CD before this all started. It’s too simplistic to look at this in terms of pushing prices down.

How has the era of the internet and social media impacted the big brands?

It is absolutely impossible now for brands not to engage with the idea of  integrity, so we continue to see all sorts of brands – Dove, Lynx, Coca-Cola, Nike – being held to account by consumers who are dialoguing with each other about those brands online. The big challenge for brand owners as a result is how do they deal with that new dialogue.

I think there are two ways of doing it. Firstly, they have to participate. Secondly, they can only participate in the conversation where they have credibility. Where brands have had inappropriate practices, or something to hide, they can’t get engaged. That is something we have known for a while, but I think it will become more widespread. Look at Innocent, which sold a piece of its business to Coca-Cola recently. The first thing that happened, in a very, very public way, was that customers of Innocent – not shareholders, not distributors, but the people who buy the product – called the company to account on a company blog where the founders of the company participate. That’s a good thing and I think that is where the future will be.

So is this new online dialogue ultimately a positive for businesses and how they develop their brands?

It is a positive for business, and it’s important to remember that many of the basic rules still apply in the online world. Segmentation is still as important now as it was. I think that segmentation is all around information, using information that we have to connect with the consumer and identify specific needs, for which they will ultimately be willing to pay. And that applies online and offline. Look at Chris Anderson’s recent book, FREE. He is not saying in the future everything will be free, but I think what he is saying is that some stuff is going to be free, and that consumers will be more discriminating about what they are willing to pay for.

So, in this new digital landscape, consumers will still pay for what they need, for what provides value for them?

Yes, that’s the same as it always was, and it’s not going to change. If, in principle, nobody is willing to pay for anything, then we’re all bankrupt and we’re all out of a job. But that is absolutely not what will happen. What will happen is businesses will be forced to be more segmented and develop more products, which bring true value directly to their customers. That, in turn, will create more wealth and that’s a good news story. 

By Ann O’Dea

Professor Damien McLoughlin will be chairing the Digital Landscapes conference, which takes place on Wednesday, 3 March 2010, from 7.40am to 12.30pm at O’Reilly Hall, Belfield, UCD. For further information, or to book, visit UCD’s Growing Ireland website or phone 01 7168050.

Ann O’Dea is the CEO and co-founder of Silicon Republic and the founder of Future Human