Competitive advantages in virtual markets perspectives of information-based marketing in cyberspace

Rolf Weiber and Tobias Kollmann

University of Trier, Trier, Germany
The aim of the following discussion is to present the division of markets into marketplace and marketspace and evaluate the significance of virtual value chains in opening up further possibilities in the marketplace and marketspace. Against this background, it will secondly be argued that information becomes a factor of success in its own right in competition in future markets. However, in order to activate information, marketing is forced to adapt to the conditions of information networks in the virtual marketplace (marketspace). Third, the theory that marketing must develop into information-based marketing will be discussed. The demands put on the information-based market in order to achieve real competitive advantages in marketspace from the factor of production information will be particularly considered. The significance of virtual value chains in revealing new market opportunities The marketspace the virtual market system of cyberspace One can assume that through the development of networked information systems (cyberspace), a division of market systems relevant to companies takes place. Conversely, the physical world of raw materials, resources and products, the so-called marketplace, continues to exist. Within the marketplace, the traditional problems concerning the real value chain of a product or service (e.g. procurement, production, distribution, etc.) are considered. Alongside the physical world there emerges a virtual world of cyberspace induced by an increase in electronically networked information systems, this virtual world being characterised by digitalised information and communication channels. The virtual market in cyberspace, in which information is handled, processed and utilised, and through which virtual value creation chains are brought about within data networks, can be referred to as marketspace according to Rayport and Sviokla (1994, p. 142). It is in this context that virtual marketplaces and virtual transactions of or with information develop. This means that the marketspace can be seen as an artificial, intangible market for information. The

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consequences of this division of relevant market systems into marketplace and marketspace can be structured in three central lines of development: (1) Performance improvements in the marketplace: information can help to achieve a supporting increase in efficiency of the actual offer (products or services). (2) Freestanding output in marketspace: information gained from the marketspace can function as an autonomous source of competitive advantages. Information becomes a product in its own right, which is traded in the marketspace. (3) Additional consumer value in marketspace. Through the parallel utilisation of marketplace and marketspace, information can form the basis of an additional utility in its own right over and above the physical offer in the marketplace. The significance of both market places means that competitive successes will be determined in future by activities in the virtual and the real worlds. This development can be seen in an example from the music industry. There has been a massive increase in the use of information networks by companies in the music industry. Various suppliers of sound carriers can be contacted through the networks, such as World Wide Web (WWW), of commercial online services (for example BMG, Sony, Geffen Records etc.). Originally the aim was to present real sound carriers. However, the information networks can offer additional services to those products traded in the marketplace. By making digital audio recordings of music available, companies have the opportunity to collect information about the popularity of the music before they undertake an expensive launch. Because electronic traces of users are left behind (e.g. the calling-up rates of music titles in combination with demographic data about users), the information can be analysed and can be transformed into profiles of potential users. Through the use of information in marketspace, physical (real) offers of sound carriers and their contents can be more effectively matched to the corresponding user profiles. In the future, it will be possible to sell music directly through information networks; these can also be combined with other products such as concert tickets and video clips. Three lines of development resulting from the division of market systems into marketplace and marketspace are indicated in this example: (1) Consumer profiles provide useful information which can be used for example to improve the functionality and quality of real sound carriers (performance improvements in the marketplace). (2) Consumers can be offered the opportunity in marketspace (e.g. through an online system) of being able to compile individual pieces of music and to transfer them directly onto CD or PC (freestanding output in marketspace). (3) Digital audio recordings can be supplemented in marketspace by additional information for example about the production of music titles or about the artists (additional consumer value in marketspace).

The importance of virtual value chains in the marketspace for competitive successes in information-based markets The creation of a marketspace in cyberspace will make it necessary for companies to reconsider the way they regard value-creating measures. In the future, a company will be able not only to achieve consumer values through physical value adding in the marketplace but also through virtual value adding in marketspace. The analysis of value chains in the physical marketplace is based on the approach of Porter (1985, p. 59). The value chain divides a company into strategically-relevant activities and identifies physically and technologically distinguishable value activities, for which the customer is prepared to pay. In this case, information also plays an important role in terms of competitive success because it is through information that existing processes can be better analysed and controlled. However, this information has until now been seen simply as a supporting element rather than a source of value to the consumer in its own right. Porters value chain can be used in two ways in the virtual world of data networks to consider value chains in the virtual marketspace: (1) Rayport and Sviokla (1995, p. 75) have highlighted that first, a virtual picture of the physical value chain in the business process can be created. Each step of this virtual picture is then to be tested for its information content. In this way, virtual value creation activities, which are carried out through or with the aid of information, are drawn out. These information processes are however linked to the origins of the physical value chain, as virtual value creation activities have a direct influence on actual activities and are tied to them (information as a supporting increase in efficiency). In this context, one can also speak of a virtualactual value chain, as the relevant activities of the actual value chain also form the basis of activities in the marketspace. (2) Going beyond the arguments of Rayport and Sviokla (1994, 1995) there are also autonomous value creation activities in marketspace, which can be traced back to the importance of information in its own right. By information functioning as a source of competitive advantage in its own right, virtual value creation activities can emerge in the marketspace, independent of a physical value chain. These virtual value creation activities are not however of the same nature as the physical value activities identified by Porter, but take the form of the collection, systemisation, selection, combination and distribution of information. It is through these specific virtual value creation activities at an information level that a virtual value chain, whose origin and influence can only be found in the marketspace, manifests itself. This is the case for example when in the music industry information which has been collected from the electronic traces of users in the digital information network and which can provide detailed information about the musical

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tastes of consumers can be sold on to electronic entertainment companies. The interrelations between physical (marketplace) and virtual value chains (marketspace) as well as the creation of new markets can be seen in Figure 1.

Physical Value Chain

Company infrastructure Personnel Management
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Technology Development Procurement

Output logistics Customer service Input logistics Operations Sales and marketing

Marketplace

New Markets

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Value Matrix

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Virtual Value Chain

Information gathering
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Information systemisation Information selection

Information combining Information distribution Information exchange Information evaluation Information offering
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New Markets

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Marketspace
Company infrastructure
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Personnel Management

Technology Development Procurement

Output logistics Customer service Input logistics Operations Sales and marketing

New Markets

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Marketplace/Marketspace

Figure 1. The path from the physical to the virtual value chain

Virtual-Actual Value Chain

Owing to the significance of marketspace, a common value matrix will exist in the future, in which there will be an intensification of different value chains. This argument is also put forward by Rayport and Sviokla (1995, p. 82) in which the existence of a freestanding value chain in marketspace was

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considered in terms of the formation of new outputs through information processes. The relevance of these arguments depends on the extent to which the product is linked to information technology. Generally it can be assumed that this link is stronger in the case of durable consumer goods than goods with a short life cycle. A first summary point and recommendation for action at this stage would be:
The growth in information technology and networks will lead to a division of marketsystems into marketplace and marketspace which is important for competition. Virtual value creation activities enable performance improvements and supplements to be achieved in the marketplace and freestanding outputs to be offered in marketspace. The value creation activities in both market systems should ideally be combined in a common value matrix.

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Information as a freestanding factor of success in the marketplace and marketspace In order to ensure that companies are capable of surviving in the market, it is of paramount importance that they offer successful products and services. The success of a product is determined by relations inside the so-called marketing triangle, which consists of the relationship between ones own offer, the needs and wants of consumers, and the offers of relevant competitors (Ohmae, 1982, p. 91). It is possible, through the relationship network within the marketing triangle, to achieve competitive advantages in terms of successful marketing when ones own offer corresponds with the goal system of consumers (customer-orientation) and is held by consumers to be better than that of competitors. As far as the marketplace is concerned, Porter (1980, p. 71) demonstrated through the so-called U-curve that successful companies follow a clear strategic direction, which is expressed either in cost leadership (cheaper) or quality leadership (better). Cost and quality strategies in the marketplace can be described as generic competitive strategies. In the most recent past, two further success factors have been identified which can be termed time (speed) and flexibility. They do not replace quality and costs as success factors but rather join them and are manifest in the speed of adaptability of companies. If, against the background of these factors of market success, one poses the question as to what strength this discovery has, what characteristics must cost, quality and speed of adaptability have in order to be successful in the different competition situations in the market, then the proponents of Austrian market process theory have already shown that it is information which becomes the controlling power in competition. According to Hayek (1945, 1946), competition can be interpreted as a process of information distribution, and Kirzner (1973) argues that competitive leads can always be explained through information leads. This means that, at the end of the day, it is the quality of information which, on the one hand, is responsible for showing to what extent companies are able to identify factors of market success in their various forms, and which on the other hand, assumes the central directing function for combining operational factors to produce successful offers in the marketplace.

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Although information is regarded as fundamental to the management of the company output creation process, it is difficult to interpret it as a factor of production in terms of classical production theory, because information processing by itself cannot produce any physical outputs for the marketplace. In contrast, an examination of the virtual value chain has shown that in the marketspace, information can most certainly be regarded as a factor of production, which creates information products through virtual value creation activities. While until now, information in the marketplace has simply had a supporting function for physical production processes, in the future it will become an independent factor of production and competition. Figure 2 provides a summary of the competitive factors in the marketplace and marketspace.

Quality/ Service

Costs

Information

Figure 2. Factors of market success in the marketplace and marketspace

Time

Flexibility

This factor of competition can be explained in that both the efficiency of company performance systems as well as the effectiveness of entrepreneurial activities with regard to the creation of successful market outputs can be increased by gaining, processing and transferring information. In this way, information can fundamentally influence the dimensions of competitive advantage in terms of efficiency and effectiveness (Drucker, 1973, p. 45; Day and Wensley, 1988, p. 2). If one concentrates on examining the achievement of advantages for physical outputs in terms of effectiveness, then the marketspace offers improvement potentials in two ways:

(1) Increase in effectiveness through the acquisition of information: by gaining information about the needs and wants or ideas of potential customers in the marketspace, it is easier to realise the goal of offering products or services tailored to individual demands, since customer information can be actively utilised in the shaping of products. (2) Increase in effectiveness through the transfer of information: by providing information in the marketspace about ones own products or services, potential customers can become more aware of and assimilate the advantages of products, as they can self-select and actively evaluate information which is relevant and useful to them. From the point of view of the company, it is decisive that, on the one hand, it obtains more and better information about consumers than its competitors (factor: gaining information), in order to be able to offer more successful products more effectively, and on the other hand, that it is able to offer consumers better information through the marketspace (factor: information transfer), in order to structure communication with potential customers more effectively. While according to Porter (1985), it is possible to differentiate between market success in the marketplace in terms of cost-leader and qualityleader, in the marketspace one can distinguish between the successful market strategies of speed-leader (in terms of rapid gaining of information) and topicalleader (quality leader in terms of high quality information) (see Figure 3). Against the background of the fact that the shift towards marketspace, brought about by information technology, results in information becoming an important dimension of competitive advantage, a second summary point and recommendation for action is as follows:
The division of market systems into marketplace and marketspace means that information becomes a factor of success in competition in real markets and a freestanding factor of production in virtual markets, so that companies can only achieve success in the markets of the future if they actively participate in the information technological change process.

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The necessity of information-based marketing in marketspace The shift towards networked communication structures (cyberspace) and therefore towards a division of relevant markets into marketplace and marketspace places new demands on companies. At the centre of structural change in market systems is the use of information through digital data paths. In order to utilise this central competitive factor, it is paramount that marketing adjusts to these changes brought about by information technology. The result is a type of marketing which specialises in the use of information. As information is the basis of this specialised marketing in marketspace, it is referred to as information-based marketing. In order to actually realise potential competitive advantages in the future, a basic requirement for success in the market, information-based marketing must also be able to adapt to the conditions of information networks in virtual marketplaces (marketspace). The increase in networked communication channels (computer and

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MARKETSPACE -Information CompetitionProfit Topical-Leader Speed-Leader

Speed of Information Acquisition Factors of Market Success Costs Flexibility

Quality

Time

Information Profit Quality-Leader Cost-Leader

Figure 3. The realisation of factors of market success in the marketplace and marketspace

Market Share MARKETPLACE -Product Competition-

telecommunication networks) means that it becomes ever easier to place, access, offer and exchange information at certain points in the networks. Digital processing means that, first, each network member becomes an independent information unit that can be autonomously driven (receiver function) while also enabling each network member to provide other members with information (sender function). In this way a reciprocal information flow is induced, in which it is possible for each member to individually access or provide information selectively. This individualisation and differentiation of demand through

interactive information networks infers fundamental changes within exchange relationships in the market:
Due to the particular importance of information for the market systems marketplace and marketspace it is necessary that marketing is concentrated on the utilisation of information (information-based marketing).

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Requirements of information-based marketing in marketspace The potential advantages of the reception and analysis of information through interactive information systems can only be realised when thought patterns and activities in marketing also undergo a thorough reengineering. Starting with mass transactions, which concentrate on marketing pre-produced products to anonymous mass markets, the shift towards buyers markets brought about a stronger focus on customer commitment in terms of relationship transactions ( Jackson, 1985, p. 120), while more recently the greater use of information technology products in marketing have opened up the possibilities of customisation transactions (Kotler, 1989, p. 10). In the future, however, information-based marketing is necessary in order to fit in with the aforementioned features of the interactive future in cyberspace and particularly in marketspace (Figure 4). Information-based marketing can be interpreted as being the software that makes the hardware of interactive information networks (data-bank systems, Internet, etc.) useful to companies in terms of creating customer loyalty through individualised products and services. Through the information process, not only will segmentation for real products become more differentiated but there will also be an individualisation of the whole packet. Peppers and Rogers (1993) refer here to one-to-one marketing. Since information can be transported everywhere without any great costs, the use of information technology increases the extent of individual advice and information and therefore the effectiveness of the whole bundle of outputs of a product. It is, therefore, not the case as in customised transactions that the offers remain flexible to the wishes of customers, but rather, in information-based marketing, an individual offer is created when the customer is involved in the company value creation process through interactive networks. Against this background, information-based marketing of the future is characterised by three central features: (1) Digital transmission of information: transmission of information by digital means simplifies contact with information within the networks to a great extent. At the push of a button it is possible to access, select and analyse comprehensive information offers. Moreover it is possible to send information to individual addressees rather than to the anonymous mass market. In this way, each communication participant in the digital network becomes a target person. (2) Interactive transmission of information: interactive information transfer produces a shift from one-dimensional to multi-dimensional media communication. Through digital information networks and the

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Individualisation of Output

Information-based Marketing Customization Transaction Interactive Transaction

Mass Transaction

Relationship Transaction

Figure 4. Traditional marketing forms and informationbased marketing

Intensity of Customer Commitment

possibilities they offer in terms of reciprocal communication through channels, each participant is sender as well as receiver. Interactivity therefore brings about a shift from one-way transactions to two-way transactions. This shift from media mass transactions to interactive individual-transactions means that companies are no longer restricted to engaging in anonymous mass communication through individual media but rather that they can contact each market participant individually and specifically through interactivity. One has to be aware, however, that communication is reversed through the two-way communication of interactivity (sender/receiver). In the future it is not only companies that will distribute information to market participants, customers will also be able to acquire desired information from companies. (3) Individualised transmission of information: interactivity in information processes in marketspace inevitably leads to a significant increase in individuality between network participants, i.e. companies and customers. Interactive multimedia systems are characterised by flexible and individual access. Quasi-personal contact between market

participants means that their organisation becomes individual, i.e. it is aligned to the needs and wants of the individual contact person. A fourth summary point would be: The utilisation of information will in future consist of an interactive information process between supplier and consumer, in which informationbased marketing will help to improve the bundle of outputs offered and to increase (new) competitive advantages in marketplace and marketspace. Competitive advantages through information-based marketing in the marketspace Against the background of the developments towards interactive communication networks, it is fundamental that companies transform the possibilities of information-based marketing into competitive advantages. It can be established that the use of information technology applications together with information-based marketing can produce benefits in almost all phases of the marketing management process. This is a result of the ways of using interactive applications which differ greatly from those of traditional media forms such as personal communication, printing, advertising, electronic media or new media (e.g. telefax) (Kollmann, 1994, p. 13). Figure 5 highlights the various starting points from which competitive advantages can be realised through information-based marketing.

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Temporal/spatial Independence

Flexibility

Speed information-based marketing Selectivity

Interactivity

Closeness to Customer

Target Group

Individuality

Figure 5. Competitive advantages through informationbased marketing in marketspace

The factor of competition speed can be realised in the construction of an offer in that interactive information systems are not limited by spatial and temporal factors. Moreover, the digital selection of communication participants makes it

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possible to be more effective in terms of the factor of competition reaching the target group. An increase in individual communication through interactive contact between company and consumer reflects the factor of competition closeness to customer. Through the interactive nature, which enables consumers to be addressed individually and both communication partners to actively participate (sender/receiver function) it is possible to realise the factor of competition flexibility more effectively. Each of these factors of competition can lead to the creation of concrete extra value for the consumer within the physical, virtual or virtual-actual value chain which positively influences exchange relationships with the company. Existing contact with potential customers will become more successful, the earlier the company is able to tailor its information to the individual needs of the information seeker in the form of personalisation of service or a bundle of outputs, so that a fifth summary point can be made:
The increase in interactive information processes between supplier and consumer through marketspace can be transformed into competitive advantages when information-based marketing succeeds in shaping these processes in terms of an individual bundle of outputs with the help of flexible, quick and close-to-customer communication.

Marketing management in the marketspace The above discussion has shown that movement towards the information age adds a new dimension to the exchange relationship. The change resulting from the shift towards networked interactive communication structures (cyberspace) entails new challenges for companies if they are to survive the competition in the markets of the future. These challenges take the form of marketing in the interactive age of the marketspace. Interactive information systems enable individual, interactive and media-effective contact with active communication participants or consumers. Customer contact will no longer be a question of spatial or temporal distance, but rather a question of the organisation of information exchange between sellers and buyers. It is important here to consider the possibilities of interactive information technologies that allow a shift from one-dimensional mass communication to multi-dimensional individual communication. The discussion has further shown that there must be a shift towards information-based marketing if the possibilities that information technology offers are actually going to be exploited, and if competitive advantages in the future of the marketplace and the marketspace are going to be realised. The change should occur in good time so that as much experience as possible with the use of the new interactive media forms can be gathered. Information will play the decisive role when it comes to transforming customer needs and wants into output bundles and in this way into products. The receiving of information through interactive communication networks will correspondingly become the key success factor in competition. The use and marketing of products through interactive information networks in the twopart market system of the marketplace and the marketspace must be learned

and information-based marketing offers realistic opportunities for achieving this. Thus, the following conclusion can be reached:
In the market system divided into marketplace and marketspace, information becomes the central competitive advantage through interactive information processes between supplier and consumer, so that in the future, companies, aided by information-based marketing must concentrate more on the acquisition and analysis of information for customer-oriented output bundles.

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Summary The article offers an explanation of the phenomenon of the marketspace, a new virtual market form, which is induced by the increasing exchange of communication and information through digital data-networks. The virtual market form of the marketspace will exist parallel to the marketplace, which represents the physical world of raw materials and resources. By analysing the trade relationship in the marketspace, the factor information is identified as the key factor of competition, and this factor should be strategically offered either as quickly as possible (speed-leader) or should be of high quality or relevance (topical-leader). In the future, information exchange through the digital data networks of the virtual marketspace will be dominated by interactivity, which means every participant will be actively and individually involved in information exchange. These conditions infer an information-based marketing, which focuses on the individual consumer and enables (inter)active embedding into the value chain of the enterprise.
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