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Marketing in the Internet - as seen from Italy

by Giancarlo Livraghi

No. 14 - February 10, 1998
1. Editorial: The saucepan and the 
2. The millions myth
3. The lost generation
4. The bookstore that could be
5. A tiny but relevant case
red buttonSummary

1. Editorial: The saucepan and the hammer
If I wanted to stick a nail into a wall, and I didn't have a hammer, I could use a saucepan. The nail may bend, the wall may crack a bit, but if whatever I want to hang up isn't too heavy... it could work.

If I were on a desert island, with no tools other than a hammer, maybe I could use it for cooking: by heating the hammer on a fire and cutting things into small pieces I might manage some sort of clumsy sukiyaki. Not a chef's dream, but it would be better than eating raw lizard.

But when we are not marooned it's better to choose our tools according to what we are doing. A hammer, a screwdriver, or pliers, depending on the task; pots, pans or oven depending on what we are cooking.

I wander why, when dealing with the net, so many people use (or offer) tools and approaches that are too generic and simplistic to fit the job at hand. They may, sometimes, work; but they are much less efficient than an organized plan based on a clear objective and executed with an appropriate method and toolbox.

The time has come when there are much more accurate and manageable analyses and approaches than the generally acclaimed routes to fantasyland. They are still isolated voices in the prevailing nonsensical fanfare, but they are there. We should become less tolerant of how-to theories (and practices) that would appear primitive and clumsy to Robinson Crusoe, but are still acclaimed in the media, written in books, presented in seminars and conferences, taught in training courses and in universities (much to the dismay of good students who try to do their homework seriously).

There are many widespread mistakes. Roughly, they fall into six categories:

  1. Treating the net like a "mass medium".
  2. Following the logic of traditional marketing and broadcast media.
  3. Thinking of "electronic commerce" as the only form of net marketing.
  4. In the area of "electronic commerce", reducing it to a simplistic formula (website and banners).
  5. Even worse, treating net communication as "just another medium" for traditional advertising.
  6. Reversing priorities: tools before task.

It's just a simplistic, and only apparently more appropriate, to think of net marketing as just another application of direct marketing. It's something else. Not just because response is much more direct that any traditional direct marketer could dream, but because net communities and relationships are new and different: they need to be understood much better than anyone can by applying literally one of the traditional direct response criteria.

And... errors combine in a treacherous way. The term "exponential" is used too often when discussing the internet, leading to all sorts of unrealistic projections. But in this case it's meaningful. Errors don't add, they multiply.

Conversely, the combination of sound strategies and appropriate tools multiplies efficiency. But there's a problem: this needs much more time, dedication and application than most companies and organizations are prepared to commit.

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2. The millions myth
Not only in the remote and backward provinces of the internet, such as my country, it's still a widespread mistake to think of the net as a "mass medium". Nobody knows if there really are 50 or 100 million internet "users" worldwide; but that's irrelevant. Let me quote again Gerry McGovern. In an article published online on February 1, The 100 Million Customers Myth, he said:

Two aliens are having a conversation. One says to the other, "Hey, Joe, why don't you consider setting up a business on earth?"

"Why should I, Frank?" the other replies. "Because if you do, Joe, you'll then be able to reach five billion people!" Frank ads enthusiastically.

"Wow! Five billion people, Frank!?" shouts Joe. "That's incredible! What would it cost?

"It's really cheap to develop for earth, Joe," Frank replies. "You just establish your business and you can reach five billion people."

"Ah, Frank, what an opportunity!! Who'd set it up for me!?"

"Well, as it so happens, Joe, my company, Earth Business Set-up, specialises in creating earth-based businesses."

Two humans are having a conversation. One says to the other, "Hey, Joe, why don't you consider setting up a business on the Internet?"

"Why should I, Frank?" the other replies.

"Because if you do, Joe, you'll then be able to reach a 100 million people!"

The phrases 'not within an asses roar,' 'not a chance in hell,' 'not a snow-balls chance in hell,' etc. etc. were invented for good reason. Because if anyone thinks that just because you've established a website you somehow magically can now reach 100 million people, then let me tell you this much: You don't have a snow-balls chance in hell.

It is a ridiculous, nonsensical myth to say that having a website means that you have a 100 million market. It is still being perpetrated in far too many places. Long ago, it should have got knocked on the head with a fairly large, round metal instrument.

When you establish your website you might as well have access to zero people, certainly zero new potential customers.

Oh yes, in the early days, the very fact that a website was launched was an event in itself. It attracted traffic. 'Hey, a shoe manufacturer has a website. I don't need shoes but I've looked at all the other websites twice already, and maybe I'll even buy some shoes because it'd be so cool to say I bought shoes on the web!"

That early days sense of happening just doesn't happen anymore. Launching a website is no longer an event in itself. Those 100 million people may be using the Internet but they are not going to be battering down your server the day after you launch.

Getting people to visit and come back to a website requires good thinking, hard work and money. More importantly there has to be a very good reason for people to decide to spend some of their valuable time looking at your website, and an even better reason to make them part with cash.

The Internet does get around a number of the limits which physical geography imposes. Yes, you can create new niche or laser-point marketplaces. However, these new marketplaces don't just fall into your lap. Distribution costs may be reduced for, say, software, but other costs such as marketing still exist, and if anything may increase.

If you don't have an aggressive plan to build traffic and establish loyalty online, then launching your website will be like dropping a grain of sand on a beach. Because 100 million people may be out there, but like the truth, they're hard to get at.

That's very clear, and brightly written. I'd just like to add that 99.9 percent of the goods or services offered online are not interesting for "all" net users (no matter how many they can be) but to a relatively small part of the network community (the smaller, the better). The objective is not to attract "all", but only those who are interested in what we have to say or to offer; and in a way that is interesting for them. Obvious? Yes. But how many know how to do it, or are even trying?

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3. "The lost generation"
Professor Gabriele Calvi, president of Eurisko (one of the best Italian organizations for the study of social trends and behaviors) published an interesting article in the latest issue (December 1997) of his quarterly Social Trends report. Here is a summary of some key points:

There are seven million Italian children and teenagers at school this year. One in five lives in a home where there is at least one computer. That's to say that one and a half million pupils or students may have a chance to learn to use it - if they have access to the computer, and if parents or elder brothers or sisters are willing and able to coach them.

In the United States 40 percent of families have a computer at home; in Italy less than 20 percent. Things are even worse when we get to the net. One percent of homes in Italy has an internet connection; 17 percent in the USA. That's 15 million American families online, 200 thousand Italian.

It's been observed by many reliable sources that the average family in Italy has been largely making up for the lack of support from the state and the institutions; acting as bank, insurance, health care and social assistance. They support unemployed (or poorly employed) young people until they are 30 or 35 years old; they even buy homes and provide financial help for young couples that get married and set up a family though they can't afford it.

But when it comes to education, family support is not always adequate; and in the case of information technology most Italian families fail to understand how important it is for the future of their children. In this area the family-based society reveals it myopia; too often it puts temporary quality of life, and ephemeral enjoyment, over investment in tools and knowledge that are vital for the long-term welfare an happiness of young people.

Families have not been educated to understand the radical change that is coming with the information revolution and the globalization of the economy. They have not been made aware of the effects that this will have on the life of their children, even worse than those that are already hitting the previous generation - people now in the 30-50 age bracket.

The responsibilities of families in this betrayal of our children are heavy. But those of politicians and institutions are worse. They have failed to understand how large a catastrophe is the loss of at least one generation in the worldwide competition of the information society.

The recently announced investments for the use of computers in schools are inadequate. They can not provide enough equipment, or enough training of teachers, to fill the gap. At this pace, Italy is planning to lose an entire generation.

In this way we are carelessly condemning many more million young adults, in addition to today's twenty and thirty year olds, to marginal and poorly qualified jobs, to isolation and social protest, if not to drugs and crime.

I would like to add that there is a problem of quality as well as quantity. If we had a computer for each pupil in every school, and if they had connections, and if they were really used, and if we had enough teachers capable of providing a minimum of guidance (and that's a lot of ifs) we would only be half way there. Families (as well as politicians and teachers) are bombarded every day with sensationalism and misinformation, that make them uncomfortable and scare them away. The quality of technical training available is often pathetically poor, overtechnical and unfriendly.

Nothing is being done to correct the dominant trend that makes equipment and software unnecessarily expensive and complicated.

Above all, the problem is culture. We need to train the trainers, as well as to pump some humanity and reason into the minds of politicians, administrators, teachers, parents and opinion makers - that are still largely cluttered by a poisonous combination of technomythology and technophobia.

Professor Calvi's article is followed by some interesting charts. Here are two:

Equipment in Italian homes (January 1997)

Percentage of families owning at least one. Source: Sinottica 1997/1 - Eurisko

Internet access in Europe: from home and work

Percentages - Source: Euroquest October-December 1996

From home From work

Note: the reliability of such figures is always questionable,
but comparisons between countries are meaningful.

Of course in the case of France, especially for home access,
we must consider the minitel factor.

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4. The bookstore that could be
This is not a "case history". It's a hypothesis, based on general notions rather than on the real experience of Italian online bookstores (of which there are 70, but they are quite small).

Could someone set up a general online bookstore for books in Italian, such as Amazon for books in English? Of course it's a much smaller market, but I think it's worth doing.

I shall reveal a little secret. Six months ago I had considered quite seriously the idea of organizing something of this sort. But then I gave up, because I read that someone was well ahead of me in planning such a service. I don't think that, in its early stages, this immature market has room for two or more successful leaders. I don't know what has happened to that project. If they are really going to come on the market, I wish them well; and if they do a good job I shall be one of their first customers.

I hope my readers aren't too bored with my considerations on a "theoretical" case history. I hope it makes sense; and I believe that some of the basic concepts apply to several other categories, non only books.

First of all, is there a market?

Of course companies like Amazon and Barnes & Noble operate on an enormously larger market: not only the United Sates, but the vast worldwide community of people that can read English. And of course there is a high concentration of people who speak, or at least understand, English in the internet. Does it make sense to operate in a much smaller market, such as books in Italian? I think so, for three reasons.

  • There are relevant Italian-speaking communities in countries with high net penetration and an establish habit of buying online (or, broadly, by mail order). I don't mean third or fifth generation Italo-Americans, who read English much better than Italian (or people of Italian origin that speak other languages, such as Spanish or Portuguese in Latin America). I mean first or second generation Italians that live, work or study abroad. There are many, and they are interested in staying in touch with their home country; most of them don't live in a neighborhood where there is a well-stocked Italian bookstore.
  • There are few Italians online, but they are generally well educated and "in the market" for books. They are the sort of people that often need a specialized or unusual book, not easily found in their local bookstore. They are also, generally, quite busy, and may not always find the time to go shopping or to order out-of-stock books in a store and go back to pick them up.
  • Backward as we are, the number of Italians online is increasing. A seed well sown today may grow to a sizable plant tomorrow. The pioneer of today is well placed to be the leader when the market grows.

Of course an Italian bookstore could never become as large as the American giants. But being small has its advantages: the territory is too limited to attract the attention of large multinational invaders.

Why a bookstore?

That books are an ideal category for online selling is proven by the success of Amazon and others. But even without that experience it would be pretty obvious. People who buy books are more interested in content than appearance. And (more so than in other fields) it's possible to organize browsing systems that are more efficient than the shelves and stairs of a large "physical" bookstore; and to provide information, such as summaries and reviews, at the touch of a button.

Are margins good? Yes. Half the price of a book goes to distributors and retailers.

Delivery time? That's a problem. Our postal service is notoriously slow and inefficient. But with good organization, and intelligent use of couriers, solutions can be found.

I think there are two keys to success in this business:

Logistics. 40,000 books are published in Italy each year. If editions had an average lifespan of three years, that would be a catalog of over 100,000 titles (not including the recovering of out-of-print books, which a really good online bookstore should be able to manage). Too many, of course, to be stored in a warehouse. The online bookseller must have a very efficient and fast system to receive the books from publishers or distributors and ship them to customers. There are over two thousand publishers in Italy and working efficiently with all may be quite a task (but only 160 publish more that 50 books a year, and that makes the picture a bit less complicated). It's not easy to organize all that efficiently and smoothly. But if Amazon can manage two million books, and even find second-hand copies of old ones... it can be done.

Service. Not just quick response and delivery. A well organized catalog, a well planned offering of reviews, information, news, etcetera. A site that people will want to visit even when they are not planning to buy.

Would traditional bookstores close? Of course not. Nobody would want to order online what is easily found in a nearby bookstore or newsstand. And nothing can replace the pleasure of walking around a good bookstore and talking to an intelligent bookseller.

There could be cooperation. Why can't the bookseller have a terminal, to order instantly for his customers those books that are not available at that time in his store?

Is it only for Italian books? Maybe not. One of the strategies for this business could well be networking with online bookstores all over the world, to offer books in English and many other languages. That could be a traffic builder. If someone wants a book in Greek or Dutch, and knows that the Italian bookstore can find it, he or she would visit the site and probably buy something else as well.

Does it need an investment? Yes. Organization, structure, technology - and people. Service cannot be totally automatic. Customers will be very disappointed if they can't get a personal answer to a question or suggestion in less than 24 hours.

Would return on investment be fast? No. The key secret in such an operation is to keep initial investment relatively low and build gradually. Even so, it needs money to get started and the breakeven point is not round the corner.

Would it need a big advertising investment? I don't think so. Media (and all the culture institutions) should be very interested in the opening of such a service. In any case the news would spread, maybe not instantly, but steadily, all over the net. And the key to success is word-of-mouth. It may be slow, but it's very effective. The key marketing tool is to make sure that the first customers are happy, and then keep up the "virtuous circle".

Is it only books? No. I believe that books should be the backbone, especially in the beginning; but when the operation is established it becomes relatively easy to add music; and electronic publishing... if and when there will be enough really good production.

Would the success of such a business please only it owners? No. It would make the entire online community very happy; and it would be to the advantage of anyone planning to sell online. Books could be the icebreaker for "electronic commerce" and other online activities.

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5. A tiny but relevant case
Can we learn from an example so tiny that it can seem irrelevant even in the eyes of "small and medium companies"? I think we can.

There is a business online called Grifos that sells "writing instruments". That is, rather special pens and writing sets, with prices ranging from 100 to 1000 dollars. The sort of thing that is generally bought as a gift for a special occasion.

Income: 25,000 dollars. Personnel: one. Grifos sales are practically all abroad; 90 percent in the United States.

Grifos has been online for a year and a half. It built, gradually and patiently, a network of relations. It never spent a penny on banners or any other forms of "advertising". Its tool is word-of-mouth: one satisfied customer brings another. It builds customer relations carefully: generally three personal messages are exchanged before an order is received.

After eighteen months of gradual development, Grifos has reached the magic point of breakeven. Investments are covered, from here on it's profits.

Is $ 25,000 a year (and growing) a small amount of money? Not for a single person, on top of a regular income.

How is all this possible?

The answer, as often happens, is in the personal life and experience of the founder of the business; who is also, so far, its entire workforce.

Maurizio Stura is an employee of a company that for forty years has been making, and selling to wholesalers, the pens that now he offers online. In agreement with his employer, he has been exploring alternative distribution channels. He made some experiments (such as mail-order advertising in German magazines) that were unsuccessful. But now, with the internet... He has personal experience of the net and works on it in the evening (of course one of the advantages of e-mail is that the time of day doesn't matter). Yes, it's time-consuming; but, he says, "it's more fun than watching television".

He experimented with asking other people to set up and manage his website, but then found that it was more effective (and less expensive) to do it on his own. So he invested in equipment (including a scanner) and developed his expertise by trial-and-error.

His business is expanding. His strategy is to sell directly to customers, but he stays flexible. Now he is negotiating with a wholesaler in Hong Kong.

Yes: it's a tiny business. But that has its advantages. You can stay close to customers and your territory is too small to be invaded by large competitors.

In Italy? He has two or three customers. If he had started from the home market, he would not have reached the minimum speed for take-off. But now that the system is in place, he is ready to look for opportunities in Italy as well. Three happy customers can bring nine, and so on... In his business, small numbers count.

He was very pleased when I told him I would publish this article. Not just because it may bring him a few customers. "The more these things are discussed, the happier I am. - he said - The more people understand how to be successful online, the better it will be for all of us." I wish many more people, including much larger operations, had the same understanding of the value of shared knowledge.

Is this case so unique and different from any other that we can't learn from it? I don't think so. There are criteria that can apply to almost any business, of any size. Here is a simple list of success factors:

  • Full, deep, first-hand knowledge of product and market.
  • Low costs, especially in the beginning.
  • Patience: it takes time to build a network of trust.
  • Starting with a market where mail-order is an established habit (such as the United States).
  • A clear and distinct identity (there are countless brands of premium-price writing instruments, but those that Grifos sells have a distinct taste and style). It pays to define a segment where we have better know-how than our competitors.
  • Dedication to service: always stay close to your customers.
  • Stubbornness: don't stop at the first experiment; listen, try, test, improve.
  • Flexibility: clear strategies, but an ability to adjust if the market offers new opportunities.
  • Curiosity and a willingness to learn.
  • Intelligent use of our resources (Maurizio Stura says: "My English isn't perfect, but I joke about it and my customers find it amusing").
  • The two basic qualities: imagination and consistency.

It has been said, over and over, that in the internet small, lively, entrepreneurial initiatives can lead the way. Well... it's beginning to happen, and not only in the most advanced countries.

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