MD - March 25, 1999) - Imagine it's a hot sunny day and you want a drink, but as you
approach a vending machine you notice the price of a soft drink has gone up. A leading
soft drink company is actually experimenting with technology in Australia that could track
inventory in soda and snackfood machines and ultimately set variable prices based on
factors like the weather, a top Internet analyst said Thursday.
That kind of pricing mechanism is just one facet of a new way of doing business known
as "dynamic trade," which has been spawned by the Internet.
"Dynamic trade will define the rules of the Internet economy," said John C.
McCarthy, Group Director New Media Services at Forrester
Research Inc., a technology market research firm in Boston. "We define it as
leveraging technology to satisfy current demand with customized response."
He spoke to a standing-room-only gathering that drew over 240 area netpreneurs to the
monthly Coffee and DoughNets meeting produced by the Morino
Institutes Netpreneur Program and sponsored this month by Digex.
McCarthy was joined for a Q&A session by Larry Ferrere, Vice President of Worldwide
Marketing for Vastera, Inc., a leading provider of
international trade software and by David Mitchell, Vice President of Sales for webMethods, Inc., a top vendor of cross-platform XML
Changing customer demand, globalization, Internet ubiquity and new technology and
intermediaries are driving this business evolution. Forrester Research forecasts by the
year 2003, over one million companies and 61 million households will be online, and global
Internet commerce will hit $3.2 trillion.
Ferrere emphasized that the Internet economy is global. "Dynamic trade means that
the people placing an order with you might be on the other side of the world," he
told the group. "Add the word global to everything you think about in your
Dynamic trade lets companies create product and service bundles based on consumer
preferences, use transaction data to react to market changes, and move beyond one-time
sales to maximize the lifetime value of a business relationship. This new business model
will also alter the design of products and services, the way production schedules are
determined, and pricing models.
"In an Internet economy, the companies that do well are going to be those
companies that have the technology, the culture and the processes to effectively capture,
manage and exploit data from their suppliers, customers and business partners," said
He highlighted three rules that are driving dynamic trade:
1) Customer service will eclipse products. Car companies, for instance, are using all
sorts of customized features and services to differentiate themselves, McCarthy said. They
have offered free oil changes, roadside service, and global positioning satellite systems
and electronic maps so you can figure out how to get to your destination. "Some of
them are actually looking at providing email connections in the car," he said, as
another way to customize their product.
2) Real-time demand will drive production. Supply chains will open up as companies
begin sharing more information. Final assembly will also move closer to the customer. For
example, IBM used to ship pre-packaged computers that
dealers then had to disassemble. Now, it is sending PCs in plain cardboard that can be
customized to meet customer preferences. Then theyre put in IBM's blue boxes.
3) Pricing will more closely match market conditions. Auction and bid software is a big
enabler. Freemarkets.com, online auctioneer for
everything from coal to circuit boards, on average saves customers from 3 to 30 percent.
Meanwhile, eBay Inc. sells everything from beanie babies
to surplus MIG fighters in real-time auctions.
"In some cases the Internet is going to bring a lot of downward pricing pressure
... but in other cases these technologies are going to be deployed when there is
heightened supply and overwhelming demand and prices are going to go up," said
The customer, seeking a more targeted response to his or her needs, is a catalyst for
much of this change. "They want more information. They want more timely delivery of
goods and services, they want a more responsive set of suppliers and business
partners," he said.
Dynamic Trade self-test
McCarthy offered the following quiz for netpreneurs. Rate each of the following for its
impact on your industry (High = 3, Medium = 2, and Low = 1)
Commodity market _____
Perishability of inventory _____
Capital intensity ____
Configurability of products _____
Customer's perceived investment level _____
Threat from new kinds of competition _____
Channel volatility _____
A score of 17 or higher means dynamic trade will make or break your business; 14 to 16
signals high but not immediate impact; 13 and under means less of an impact on customers
but still huge opportunities for the supply chain.