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Dynamic Trade
The next force in the Internet economy

(Bethesda, 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 Institute’s 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 solutions.

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 business."

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 McCarthy.

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 they’re 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 McCarthy.

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.

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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 _____

TOTAL _____

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.

Copyright 1999 Morino Institute. All rights reserved.

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