Clicks & Mortar - The Empire Strikes back?
Christopher Henson, Stamford


One of the leading business consulting firms recently suggested that the traditional industry could leverage its legacy infrastructures to become competitive with insurance e-business models. That's possible, but companies must first form an intent to do so and there is little evidence yet that this is part of any general insurance industry strategy.

Technology confers no sustainable competitive advantage. It is how people understand and use it that does. To that point, a recent Morgan Stanley Dean Witter opinion entitled Insurance: A Revolution Waiting To Happen? makes a useful contribution. It offers an analysis of two Internet business models and relates them to a 'clicks and mortar' strategy. It suggests that within the e-business space there is room to differentiate transactions on at least two different levels.

Traditional businesses such as Circuit City, a large retailer of electronics, are taking on their 'virtual' competition with a strategy called by analysts 'clicks and mortar'. This strategy recognizes what is least obvious about the virtual transaction, which is that its main advantage is not in the price of the product but in the services associated with its purchase. For example, if consumers prefer to purchase a book from Amazon.com whose cost plus overnight delivery charge is essentially the same as an over-the-counter book from Barnes & Noble what does that say about the B&N transaction 'experience'? Apparently, not much. 'Clicks and mortar' improves that experience by converting inventory to an advantage by harnessing it with online catalog access from which the retail customer can obtain both comparative and product information and streamlined delivery. That strategy is clearly relevant to providers of financial services.

Some insurers are already in the process of becoming 'clicks and mortar' e-businesses with a preliminary strategy of single transaction pages at their public web sites and with private extranets designed for customers or agents. These two elements of an Internet strategy anticipate what Morgan Stanley Dean Witter researchers have identified as also representative of two distinct emerging Internet business models........

"....one customer-centered, the other product-centered. The customer-centered business builds long term relationships and trust, the product-centered business targets a single product at a single point in time."

These two models provide several ways to gain advantage over potential competition from 'virtuals' and from traditional competition. In the different models we have products (individual risk transactions) and we have services (more complex business relationships) but both benefit from a 'brand' which clients experience as freedom from financial insecurity. Thus in both models products and services are synonymous. The customer relationships which underlie these transactions are part of their 'delivery'. These relationships can be targeted by virtuals and other competitors but if they cannot replace them (and price alone is not sufficient reason for most customers to change) they cannot improve them.

Morgan Stanley goes on to define the main characteristics of these two models.....

" ...(the customer-centric model) is relationship-orientated and represents long-term relationships built on advisory services......it takes a holistic view of the customer over his or her financial lifecyle.....it uses the Internet as a service tool......it has a high-cost distribution network"

An interesting example of this model is the Personal Financial Services extranet at the State Farm web site (available under the 'My State Farm' option). This takes a holistic view of an individual client's finances and the point of it is that the customer, commercial or personal, should have no reason or need to go elsewhere.

On the Product-Centric model, Morgan Stanley comments......

"...transaction-oriented .... limited-relationships - the product is purchased if it is 'best of breed' and competitively priced ..... targeting a single need at a single point in a customer's lifecycle to sell a single product... uses the Internet as a distribution channel ... low-cost distribution network."

Here Morgan's research is becoming outdated in one aspect. We are seeing these 'single need, single products' distributors allying with providers of other services to expand the transactional possibilities (and by so doing creating an embryonic 'relationship' with a customer). An early example was Autobytel and other car buying services which began providing numerous links to supporting products and services as well as getting the customer 'the cheapest car'.

Behind each of these bare-bones web-based single transaction is a link to the same technology which underlies full service extranets. Could this simple single transaction page also serve as a portal to those services? Could the price of a product purchased from inside an extranet be differentiated from that purchased outside? Will it be possible to build, on a large scale, web pages aimed at new customers where the 'experience' of the purchase - supported by customized access to the inventory of knowledge that the company maintains - competes with the 'virtuals' principal competitive advantage? And that principal competitive advantage is not price but the purchase and delivery experience associated with the transaction. Whether customer-specific or product-specific, the potential of these e-business vehicles remains to be developed.

Traditional insurers who do business on the web will also have a serious advantage in their own names. Virtual companies rarely have the market advantage of the trusted brand enjoyed by companies with many years of successful history.

A ‘clicks and mortar' strategy, properly applied, offers the basis of a solution to companies seeking to combine an ability to remain competitive in the new e-business environment by leveraging the advantage of a trusted brand. It turns 'overhead' into a commercial advantage by integrating it with an e-business strategy that couples maximum internal efficiencies with a 'holistic' attention to customer service. All of this is enabled by technology, but again, what is most useful about technology is what people make from it.