Tuesday, February 13, 2001

SMEs to Benefit Most From Online Auctions

Consumer online auctions will soar to €8.8 billion in Gross Auction Value (GAV) in 2005, but few firms will benefit from the boom. Instead, SMEs will emerge as the real money-generator for online auctions, potentially generating €58 billion in 2005, according to a recent report by Forrester Research.

"Online auctions show explosive growth in Europe, and Forrester estimates that €1.13 billion worth of goods and services will change hands this year through consumer online auctions, with C2C transactions accounting for almost two-thirds of this value," commented Forrester analyst, Hellen Omwando. "By 2005, the European auction market will grow eightfold, with B2C outpacing C2C to take 52% of the total. Forrester projects that C2C auctions will maintain a compound annual growth rate of 43% through 2005, growing from today's €706 million to a healthy
€4.2 billion.

"But with the auction business from Europe's 72 million online consumers already locked up by eBay, iBazar, and QXL, Europe's online auction houses are chasing the wrong target. Instead, Europe's 9 million online small and midsize enterprises (SMEs) offer auction houses the opportunity for differentiation, higher revenue, an open playing field, and liquidity. SME auctions can compete on value by specializing in particular verticals like construction and offering services like lines of credit. They purchase higher value items in quantity, and SMEs have recurring needs that build liquidity through repeat purchases."

Europe's SMEs are unlikely to turn to the Net for regular purchases of direct materials over the next five years. But for indirect goods like furniture and paper, occasional purchases like company cars, and spot needs like additional inventory stock, online auctions form a credible alternative to established channels. Forrester advises that firms looking to capitalize on this opportunity must approach SMEs on their own terms. While SMEs share consumers' needs -- requiring fast, simple sites with guided selling tools like parametric search -- they also have five unique requirements --vertical expertise, low-cost entry,
value-added services, trusted names, and requests for quotation (RFQ) support.

"Today, consumer auctions fulfill some SME demand with an offering that meets the low-cost entry requirement," Omwando added. "These players will succeed at drawing home-based SMEs with one or two employees that intermingle their business and personal purchases. But consumer auctions will attract few larger SMEs because they fail on the other four criteria."

Many SMEs have their own specialist trade networks where they buy and sell among themselves and liquidate overstocks. These players will migrate current phone- and fax-based systems to the Internet, rapidly pulling a swath of SME trade along with them.

"Broad-based portals like Yahoo! and Terra Lycos already have the traffic, technology platforms, and know-how to meet SME auction demand -- but they lack industry credibility," Omwando concluded. "To overcome this hurdle, they must enter joint ventures with established business to facilitate supplier-SME trade. Also, small-scale eMarketplaces already incorporate SME needs such as RFQ, and will support and plan to enhance value-added services, but they suffer from lack of brand recognition as early entrants. We expect them to outpace their large-scale eMarketplace peers who focus on locking up industry giants, not SMEs, and grab the SME opportunity by partnering with local cooperatives by 2005."

Automakers Must Focus On Online Episodic Marketing
A wide consideration gap exists today between the early-stage awareness of an auto site visitor and a consumer ready to purchase a car. According to a new Report from Forrester Research, Inc., vast, confusing carmaker sites squander tremendous marketing opportunities owing to misguided online strategies. But smart carmakers will reconfigure their Web sites with episodic marketing -- a series of structured interactive experiences that substantiate decisions and guide consumers toward purchase.

The auto industry spends $42 billion per year on acquisition marketing -- moving consumers through the shopping process from awareness to consideration to purchase. And even though auto marketers are enthusiastic about the Web's potential, their focus on lead management and routine Web site upgrades alone won't improve marketing effectiveness. Consumers are frustrated with manufacturers' sites. Instead of crafting messages for relevance and impact, carmaker Web sites serve up dry specification tables and generic option descriptions.

"Auto marketers are missing an unprecedented opportunity," according to Baba Shetty, senior analyst at Forrester Research. "Online car shoppers willingly offer up the most precious resource in the marketing world -- focused consumer attention. Yet carmakers respond with vast, confusing, and unpersuasive sites. Successful auto marketers will streamline the process, creating a simple, intelligent, and direct path through the buying cycle -- an approach we call episodic marketing."

Episodic marketing uses intelligent apps to pull consumers step-by-step along the consideration gap. Auto site visitors go online with questions and concerns specific to their vehicle needs and position in the buying process. Episodic marketing responds with concise and compelling evidence -- a customer-centric view of key selling propositions.

Through the end of 2002, the mission for auto marketers will be to move beyond weak experiences at current Web sites and toward robust episodic marketing. But by 2003, episodic marketing will move beyond the Web as interactive TV combines full-motion, full-screen video with interactivity to create relevant, powerful brand experiences for millions of households.

For the Report "Bridging Auto's Consideration Gap," Forrester conducted in-depth interviews with the interactive architects that help carmakers build their digital marketing programs. The agencies interviewed represent 25 of the 37 light vehicle brands sold in the United States.