Permission Marketing of Informediaries in M-Commerce Advertising

Contents

1 Introduction
1.1 Problem Statement / Relevance
1.2 Definitions in Mobile-Commerce
1.2.1 Mobile-Commerce
1.2.2 Mobile-Advertising
1.3 M-Commerce Market Overview
1.3.1 Mobile Markets
1.3.2 Mobile Value Chain/Web
1.3.3 Enabling Technologies
1.3.3.1 Network Technologies
1.3.3.2 Service Technologies
1.3.3.3 Localization Technologies
1.3.4 Mobile Devices
1.4 Attributes of M-Commerce

2 Permission Marketing
2.1 Permission in Customer Relationship Management
2.1.1 Definition of Permission Marketing
2.1.2 The Concept of Permission
2.1.3 Mobile Customer Relationship Management
2.2 “Opting” in M-Marketing
2.2.1 The Six-Step Opting Program
2.2.2 Spam and Clutter
2.3 Permission Intensity
2.3.1 Intravenous Permission Level
2.3.2 Points Permission Level
2.3.3 Personal Relationship Level
2.3.4 Brand Trust Level
2.3.5 Situational Level
2.4 Target Marketing through Personalized Advertising
2.4.1 Push & Pull Advertising
2.4.2 Advertising in the M-Commerce Context
2.5 Special Features of Permission Marketing in M-Commerce
2.5.1 Medium for Mobile Advertising
2.5.2 Pros and Cons compared to Traditional Media
2.6 Summary

3 M-Infomediary
3.1 Concept of Infomediaries as Advocates of Mobile Consumers
3.1.1 Definition of M-Infomediaries
3.1.2 Services to the Consumer
3.1.3 Services to the Vendors
3.2 M-Infomediary Types
3.2.1 Customer vs. Vendor Oriented Infomediaries
3.2.2 Open vs. Closed Relationship with Buyers and Sellers
3.3 Building Infomediaries in M-Commerce
3.3.1 Three Stages to Build an Infomediary
3.3.2 Potential Candidates for M-Infomediaries
3.4 Customer Profiling with the Enabling Technologies of M-Commerce
3.4.1 Customer Profiling for Personalization
3.4.2 Customer Data
3.4.3 Privacy Intrusion
3.5 Benefits and Challenges of M-Infomediaries
3.5.1 Benefits of M-Infomediaries
3.5.2 Challenges of M-Infomediaries
3.6 Summary

4 Permission Marketing Infomediation in M-Commerce
4.1 Permission Marketing Infomediary Business model
4.1.1 The Merged Model
4.1.2 Revenue Streams
4.2 Infomediary Types and Permission Intensity
4.2.1 Four Types of Permission Marketing Infomediaries
4.2.2 Permission-Based Infomediation in M-marketing
4.3 Permission Marketing Infomediaries vs. Direct Relationship Marketing
4.3.1 Re-Intermediation
4.3.2 Economics of Intermediation
4.4 Permission Marketing Infomediaries vs. Interruption Marketing
4.4.1 Weaknesses of Classical Marketing Approaches
4.4.2 Economics of Interruption
4.5 Permission-based and location-sensitive-advertising in M-Commerce
4.5.1 Typology of M-Commerce Advertising
4.5.2 Location-Specific-Advertising
4.5.3 Revenue Streams of Location-Based-Services
4.5.4 Finding the Right Balance
4.6 Summary

5 Empirical Survey
5.1 Set of Criteria
5.2 Case Examples
5.2.1 Mr.AdGood and MindMatics
5.2.2 LoopCityScout
5.2.3 Kompazz/Appollis Interactive AG
5.2.4 SMS-Rabatt
5.2.5 AdMox
5.3 Results

6 Conclusion
6.1 Possible Conclusions of Research
6.2 The Future of M-Commerce

Bibliography

Eidesstattliche Erklärung

Tables

Table 1-1: Players of value chain/web

Table 2-1: M-Commerce Advertising

Table 4-1: Permission Marketing Infomediaries

Table 4-2: Models of Permission Marketing

Table 4-3: Mass Marketing vs. One-to-One Marketing

Table 5-1: Results of Empirical Study

Figures

Figure 1-1: Speed to market

Figure 1-2: Network technologies

Figure 2-1: Consumers want to control advertising

Figure 2-2: Permission Levels

Figure 2-3: M-Commerce Revenues

Figure 2-4: Dimensions of Contextual Marketing

Figure 3-1: Infomediary model

Figure 3-2: Types of Infomediaries

Figure 3-3: Building Infomediaries

Figure 3-4: Customer data

Figure 4-1: Mobile Infomediary model

Figure 4-2: Transaction costs

Figure 4-3: Development of Advertising

Figure 4-4: M-Commerce Advertising

Figure 4-5: Location-based-service revenues

Figure 5-1: Mr.AdGood: Account Setting

Figure 5-2: Mr.AdGood: Inactive Period

Figure 5-3: Mr.AdGood: Customer details gathered

Figure 5-4: Mr.AdGood: Detailed Interests

Figure 5-5: Mr.AdGood: Customer Interests

Figure 5-6: Kompazz: Opting how

Figure 5-7: Kompazz: Personal Preferences

Figure 5-8: Kompazz: Personal Data

Figure 5-9: SMS-Rabatt: SMS-Coupon

Figure 5-10: SMS-Rabatt: Additional Interest

Figure 5-11: Admox: Opting how and when

Abbreviations

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1 Introduction

The expectations for M-Commerce are very high. The mobile user seeks for facilitation of his daily habits and companies anticipate generating high revenue stream through new mobile applications. After telecommunication companies have paid high prices for the UMTS licenses in Europe M-Commerce has started to be the new hype. In those countries which did not have auctions but beauty contests M-Commerce has been also shifted into the spotlight. Although M-Commerce is still in its infancy, it predicts to have a huge impact on many ways of people’s lives. New buzz words like anywhere and anytime have evolved in order to describe the great potential of M-Commerce. Growth opportunities in terms of new arising mobile business models seem promising but only the future will be able to answer the question of success.

Mobile devices offer a broad range of opportunities from entertainment service e.g. music, games or video up to transactions e.g. banking, shopping, auctions. It is still unclear if all the emerging opportunities can be commercialized successfully. Nevertheless, many scenarios of how the world could be like in the future have been made. Below an excerpt of the daily routine of a future mobile user is presented: (For following paragraphs see Ovum 2000(b), p. 23-24)

“Nancy D`Amato prepares to leave her office just before five o’clock. She uses her mobile phone for a quick check of the local weather forecast, sees that fines conditions are expected for the evening, and decides to leave her umbrella by her desk. Nancy is due to meet her boyfriend Peter at seven o’ clock, so she has two hours in town to waste. As soon as the clock reaches five, she receives a text message telling her that the bar across the street has a ”happy hour“ when drinks are cheaper. Nancy deletes the message almost without reading it. She has given her mobile service provider permission to send her unsolicited local promotional messages after five – otherwise she would have to pay a higher subscription rates – but that does not mean she actually has to read the message, does it?

Five minutes later another message arrives, with a coupon offering a discount at the local branch of her favorite coffee bar. She shows the coffee-shop attendant the numbered message on her phone’s screen, and he keys in the number on the till when charging for the coffee.

Now comfortably seated with her cappuccino, Nancy begins to plan her evening. She uses her mobile to check which movies are showing nearby after seven o’clock, and soon finds one she likes with seats still available.

[…] It is better to send the details of the film to Peter as a message. She quickly sends him the cinema web address, which shows the time and location of the cinema - he can always get the review from there if he wants it – together with a few well-chosen words suggesting that it might be a good idea for him to agree to see this one.

[…] Perhaps a little retail therapy would be more relaxing. Using her mobile again, she checks to see which local shops have sales and special offers available, and soon discovers that a shoe shop is offering a promotional price on a brand she loves. She did not know the shop, but a few clicks on the mobile obtains walking directions from the coffee bar.

[…] She has just stepped into the shop when Peter replies to her earlier message. He has agreed to her choice of film, so she quickly books the tickets, which are now sent to her mobile for display at the cinema. She then searches for a restaurant nearby for dinner after the film. She knows Peter likes Chinese, and she owes him something for agreeing to her choice, so she finds a local restaurant and books a table for nine o’clock.”

1.1 Problem Statement / Relevance

More than any other marketing medium, the mobile device makes one-to-one marketing reality. It gives marketers an unprecedented communication channel to deliver promotions, coupons, value-added information and other services that are uniquely personalized to the customers needs. But only if all marketing activities can incorporate the theme of permission marketing the future of Mobile-Commerce advertising will be prosperous. It will become of greater importance in M-Commerce to have a precise idea of customer’s needs and preferences. New Business Models that have the ability to capture information about mobile users and use this data for commercial purposes like M-Advertising are necessary. Information Intermediaries (Infomediaries) are such a business model. Collected customer profiles may then be used to the customer’s advantage so as to offer them exactly what they want. Advertisers have the opportunity to target their consumers with highly personalized and relevant services.

Mobile devices, used for business and pleasure, are accessible 24 hours and 7 days per week and are rarely shared with others. They are “like a personal extension of you” (Walton 2000, p. 1).

However, with this great opportunity of highly targeted marketing comes a range of extraordinary responsibilities to ensure customer satisfaction and to avoid “spam”^[1] or abuse of personal customer information. Nevertheless, if this mobile opportunity is handled with sensitivity and intelligence the advertising industry can generate high revenues. In fact, in Germany over 1 mil. mobile users have already subscribed to permission-based advertising (Schwarz 2001, p. 290).

Research focus

At this point the question may arise of how to handle the mobile channel correctly to ensure its success. This is the main focus of this thesis. It will give a possible business model for M-Commerce advertising. The concepts of infomediary and permission marketing are carefully examined and incorporated in the M-Commerce environment. Both concepts will be converged in order to derive to a Permission Marketing Infomediation (PMI) model. This thesis will concentrate on the following research questions:

- How can infomediaries use permission marketing for advertising activities in B2C M-Commerce?
- Why is the combined approach of Permission Marketing Infomediaries advantageous?

Methodology

General investigations on the Internet and in libraries will give the theoretical input for the concepts and models in my thesis. In addition some case examples of various companies that are aligned with the PMI approach is envisaged in order to compile empirical data.

The thesis is divided into six different parts:

Part 1: Introduction

The first part will give an introduction to the M-Commerce market and its characteristics.

Parts 2: Permission Marketing

The emerging marketing strategy of permission will be presented in accordance with its main protectionist Seth Godin. It will be shown how this concept can be used for targeted advertising messages in M-Commerce.

Part 3: Mobile-Infomediaries

The revolutionary business model of infomediaries stamped by the McKinsey Consultants John Hagel III and Marc Singer will be reviewed here. The infomediary model will be applied to M-Commerce and will be describe according to its services to customers and vendors. Moreover, the process of building a infomediary will be shown in addition to benefits and challenges of this business model.

Part 4: Permission Marketing Infomediation

In this section the two approaches of permission marketing and infomediary will be combined for M-Commerce advertising. The developed model will be compared to other ways of marketing (direct relationship marketing and interruption marketing). The chapter about location-based-advertising will then illustrate how this model can be utilized.

Part 5: Empirical Survey

Five case examples will give empirical insight into the topic of M-Commerce advertising. Appropriate empirical evidence can support the developed model of Permission Marketing Infomediation. At the end the results of each case example are opposed in a table.

Part 6: Conclusion

The last section will draw a final conclusion and give a look into the future of M-Commerce. The research question will be viewed again in order to show that it has been answered throughout the thesis.

1.2 Definitions in Mobile-Commerce

1.2.1 Mobile-Commerce

Various terms like wireless commerce, wireless internet, M-Commerce, wireless e-commerce or M-Business can be found in books, articles or researches. In the following the term Mobile-Commerce and M-Commerce will be utilized as a synonym for all other notions.

Similar to the numerous notions a range of definitions for Mobile Commerce can be found. A very simple definition would be “Mobile-Commerce is electronic commerce conducted on mobile phones” (Author’s own definition) . Wiedman et al. have quite a similar definition “…the electronically supported online business activities based on using mobile devices is called M-Commerce^[2] ” (Wiedmann 2000(b), p. 1) But viewing Mobile Commerce simply as an extension of Electronic Commerce would underestimate the potential of M-Commerce. Hence, other characterizations are necessary as this definition might not clarify exactly the added-value of Mobile Commerce.

According to the investment bank Lehman Brothers, Mobile-Commerce is defined as:

“… the use of mobile hand-held devices to communicate, inform, transact and entertain using text and data via connection to public and private networks”(Lehmann Brothers 2000(a), p. 8).

Durlacher Research uses a similar working definition of M-Commerce:

“Mobile commerce is any transaction with a monetary value that is conducted via a mobile telecommunications network”(Durlacher 1999, p. 7)

According to Jörg Zobel M-Commerce is “...any interchange of services, products and transactions on mobile devices. This can take place between Businesses and Customers (B2C), Business and Business(B2B), Businesses and Professionals (B2P), Customers and Customers (C2C), Business and Devices (B2D) or Devices and Devices (D2D).”(Zobel 2001, p. 3). This broad view also includes transactions that are carried out in the offline-world. So that ordering a product through a mobile device is concerned as Mobile-Commerce even if the delivery takes place offline.

Since M-Commerce moves in unprecedented spheres a broader interpretation of M-Commerce is more suitable for the focus of this thesis, so that further investigations are based on this last definition.

1.2.2 Mobile-Advertising

Mobile devices predict great opportunities for marketers. With their high diffusion in Europe they seem to be the most powerful communication devices. For the following research in this thesis it is necessary to carefully specify the terms Mobile Marketing (M-Marketing) and Mobile Advertising (M-Advertsing). M-Marketing is technically explained by the research company Ovum as: “Mobile Marketing will be based on voice, text, graphics and music messages delivered to a range of mobile devices” (Ovum 2000(a), p. 2). It is the perfect tool for targeted one-to-one marketing based on the user profile and location (See Durlacher Report 1999, p. 72). Although “Marketing” is usually encompassed by the 4P’s (Price, Product, Place and Promotion) of the marketing mix, Mobile-Marketing in this thesis is rather used as a term which represents the practice of utilizing commercial messages for advertising, promotion and communication via mobile devices. Hence, this thesis will put the emphasis predominantly on Mobile Advertising focusing on the last P only, namely that of promotion.

Generally Advertising can be defined as: “ the science of creating and placing media that interrupts the consumer and then gets him or her to take some action”(Godin 1999, p. 25). However in the mobile context it can be understood as the act of supporting marketing and communication campaigns on mobile devices through mobile data services^[3] (Wohlfahrt 2001, p. 247). Notwithstanding, when Mobile Advertising is mentioned bellow it will always refer to as to receive customized sales and service information via mobile devices. (Author’s own definition). Location-based-advertising which will be discussed in detail in the chapter 4.5 will show the most sophisticated form of M-Advertising.

1.3 M-Commerce Market Overview

1.3.1 Mobile Markets

The scope of this thesis will be the European market with a focus on mobile B2C advertising. Despite the fact that trends and models of the New Economy usually derive from the United States, in the specific case of M-Commerce Europe adopts a clear lead in terms of mobile usage and application development. However, Japan is the first-mover in M-Commerce and can teach us some lessons.

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Figure 1 - 1 : Speed to market (See CNN Interactive, in: Credit Suisse/ First Boston 2000, p. 7)

In general the M-Commerce market is moving extremely fast in comparison to other communication channels. Figure 1-1 shows the speed to market of M-Commerce. While it took 38 years for the radio to reach 50 million users worldwide 3rd generation technologies of M-Commerce (UMTS) are predicted to reach the same amount of users in less than 3 years.

The high prices for UMTS licenses in the European auctions leave the bidders with the question if these investments can be amortized in the future. Many researches have been made in order to predict future M-Commerce revenues. Correspondingly, Lehman Brothers also predicts a very prospering future for M-Commerce with revenues reaching about 520 billion EU by the year 2005. (See Lehmann Brothers 2000(a), p. 20)

1.3.2 Mobile Value Chain/Web

The traditional value chain in the telecommunication market has changed due to new players entering the market. The players in the new value chain are strongly connected to each other. Understanding this high interdependence among each other can be very crucial for the whole M-Commerce industry. The recent downfall of Mobile Network Operators (MNO) to introduce GPRS was due to the ignorance of these market tendencies. (See Scheer 2001, p. 7). The MNOs simply did not take into consideration that manufacturers lack the ability to produce GPRS-enabled mobile devices in time.

Therefore it is justified to speak of a value web rather than a chain of lined up players. Main players and their participation in the value creation process are listed in Table 1-1 (See Durlacher 2000, p. 23). In M-Commerce advertising it is also important to consider such interdependencies when developing advertising messages (See also 2.4.1.)

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Table 1-1: Players of value chain/web (See Durlacher Report 2000, p. 23-30)

1.3.3 Enabling Technologies

1.3.3.1 Network Technologies

Today’s 2nd generation mobile devices use the GSM (Global System for Mobile communication) network technology operating on a 900 MHz and 1800 MHz frequency band as the standard for most European countries (See Durlacher Report 1999, p. 19). Mainly the lacking connection speeds when it comes to mobile data transfer demand for more sufficient technologies as a bridge to the 3rd generation. Three technologies are considered as the 2.5 Generation. (For following paragraphs see Herzig 2001, p. 397-404)

First, the already existing technology HSCSD (High Speed Circuit-Switched Data) which is still based on a circuit-switched protocol technology should be mentioned. Through bundling of several channels it can connect the mobile user with connection speeds between 28.8 Kbps to. 56 Kbps compared to 14.4 Kbps with standard GSM technology (See Scheer 2001, p. 9).

By the end of 2001 the new mobile network technology GPRS (General Packed Radio Service) is planned enable packed-switched transmission in the European market. A distinctive feature of this technology compared to the former circuit-switched is that mobile devices can be connected permanently for mobile data transfer (i.e. instant IP connectivity), without tying up capacity (See A.T. Kearney 2001, p. 20). GPRS uses multiple frequencies (4+1 slots^[4] ) as the bandwidth for data transfer. Since the user is not occupying the whole slot for him self as in circuit-switched networks the introduction of GPRS will have an “always online” service very similar to NTT DoCoMo’s i-mode^[5] in Japan. Mobile users are steadily connected and are billed according to measured data usage (See May 2001, p. 177-179).

Third, by the year 2002 EDGE (Enhanced Data for GSM Evolution) will be introduced. Being also a packed-switched technology it mainly supersedes GPRS by its higher connection speed. It is still uncertain how long the opportunity window of this technology will be, since it will be only a bridge solution between GSM and UMTS.

Nevertheless, UMTS ^[6] (Universal Mobile Telecommunications System) as the 3rd generation of mobile communication opens the gate to all M-Commerce possibilities with its broadband technology. Overwhelming speeds up to 2 Mbps will put the contemporary fixed Internet into its shadow.

The following Figure 1-2 summarizes the mentioned network technologies in accordance withtheir major characteristics.

Figure 1-2: Network technologies (A.T. Kearney 2001, p. 4)

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1.3.3.2 Service Technologies

Service technologies enable access to wireless information and applications through mobile devices. This thesis will focus only on the principal service technologies that are relevant for M-Advertising.

The unexpected success of SMS (Short Messaging Service) has already started to be misused by marketers as a channel for spamming advertising messages to customer. The limitation of 160 characters per SMS has claimed the necessity of new and more enhanced technologies.

EMS ^[7] (Enhanced Media Service) is a progression of SMS which enables users to send messages with single-colored and animated graphics as well as sounds. (See Herzig 2001, p. 398) The next step is MMS ^[8] (Multimedia Message Service) as the service technology for 3rd generation mobile devices such messages are supplied with multimedia capabilities and unified messaging services.

WAP (Wireless Application Protocol) is another service technology which works on all network technologies mentioned in the above chapter. WAP uses WML (Wireless Markup Language) a stripped down version of HTML (the Internet standard language) to display web and other data on mobile devices. At this point of time there are already a broad range of M-Commerce applications available with the WAP technology e.g. M-Routing, M-Portals, M-Mail, M-Auctions etc.

Finally, CBS (Cell Broadcast Service) is a service technology that is not very widespread yet. Despite sending a message to one user it is transmitted by many users within one cell (See Dornan 2001, p. 125).Messages are automatically deleted after reading so that no memory space is filled up.

1.3.3.3 Localization Technologies

Since mobile devices are carried around by people nearly to any location it is advantageous to know customer’s location. (For following paragraph see Herzig 2001, 398-401) Only when these technologies are applicable location-based-services can be provided. User’s location can be either determined via device-based technologies or network-based technologies. But also hybrid solutions of the following technologies are possible.

Network-based technologies use the broadcast cells for localization. COO ^[9] (Cell of Origin) can detect the cell to which the mobile device is logged into. Although the accuracy of location information can vary due to the size of the cell between 300 m and 35 Km in rural areas it can be used for little location-based-services on GSM-based WAP. This technology might be adequate for weather information or general broadcast services (See Salomon Smith Barney 2001, p. 85). Whereas TOA (Time of Arrival) measures the transfer time of signals to the base-station to trace mobile devices. TOA is also based on the GSM network but requires some technical add-ons for the base-station. Mobile devices can be tracked with an accuracy of up to 10 m – 50 m.

However, device-based technologies use E-OTD (Enhanced Observed Time Difference) as a more accurate method. E-OTD sends signals to a user’s handset and then compares the difference in arrival time versus the arrival time to a pre-known reference point.

GPS (Global Positioning System) on the other hand is a highly accurate system of satellites all around the world. The GPS receiver picks up three different satellite signals at a time and determines user’s location up to 1 meter. Nevertheless, inside buildings the GPS technology is not applicable since the mobile device always has to be in sight of the satellites (See Wohlfahrt, 2001, p. 50).

1.3.4 Mobile Devices

Generally the short life-cycles of mobile devices predict more progress in terms of display, ergonomics, batteries, improved graphical user interfaces etc. for the future. Especially the display format on mobile devices is important for mobile marketers since messages have to be tailored to the display size. Messages have to be more pinpointed than ever in order to raise customer’s attention. Similarly, existing operating systems like Palm OS, Windows CE or EPOC are important and are constantly being improved for customer convenience (See Durlacher 1999, p. 27).

There are 3 different design strategies for manufacturers of mobile devices. (See Durlacher 2000, p. 64-66) Nowadays, it is still popular to carry around several mobile devices for each single purpose. These modular devices are different devices for each utility the user desires. Customers for instance have a PDA (Personal Digital Assistant) for calendar, schedules and addresses, their mobile phone for voice communication and perhaps a laptop for navigation and office tools. Each device can be connected via an area network technology i.e. Infrared, Bluetooth or WLAN ^[10] to one and the other to enable M-Commerce.

However, integrated devices try to combine all devices and offer a all-in-one gadget for more customer convenience. The Nokia Communicator was the first integrated device with all features included. But many other manufactures are launching similar and more powerful devices to the market e.g. Compaq iPaq H3850^[11] or HP Jornada 568^[12] with voice telephony, internet browser and office tools all integrated in one gadget.

Dedicated devices are manufactured for specific market segments with unique needs for mobile devices. These devices have not completely emerged yet nevertheless videophones by Orange or GPS-enabled navigational systems in cars are quite good indications for their future development.

Other examples include Eastman Kodak and Motorola who develop a miniature digital wireless camera that can send the taken photos over the web (See Roland Berger 2000, p. 9).

1.4 Attributes of M-Commerce

Much of what the fixed Internet has been used for till now, will continue in M-Commerce. But will M-Commerce be only an extension of the fixed Internet? There are unique characteristics of M-Commerce that can lead to intensified relationships with the customers (See Silberer 2001, p. 219). M-Commerce will entail both an extension and a revolution. The following seven attributes show the benefits of M-Commerce compared to E-Commerce: ubiquity, reachability, security, convenience, personalization, localization and interactivity. These attributes at the same time encompass the emerging opportunities of M-Commerce advertising. (For following paragraph see Durlacher 1999, p. 8-9; Lehmann Brothers 2000(a), p. 9-10)

Ubiquity

The mobile device enables the user to utilize mobile services independently of their location. Users can receive real-time information or make transactions anywhere, anyplace and anytime. Marketers of M-Commerce advertising messages no longer need to wait for the recipient to come home and turn on his TV, Radio or PC. Advertising messages can be sent to the consumer on the spot, so that the combination of physical and virtual shopping experience can lead to impulse shopping.

Reachability

Users who carry their mobile devices with them can be reached any where and any place. This opens new opportunity windows for marketers and their advertising messages. Marketers can reach and confront an overwhelming amount of consumers with their messages at a time.

Mobile services with certain characteristics are more resonant to M-Marketing activities than others. These characteristics are listed below: (For following paragraph see Wiedmann 2000(a), p. 87)

- Freshness

Products and services which are dependent on their freshness and perishabilty e.g. food.

- Actuality

Products and services where real-time information is crucial e.g. stock quotes.

- Group experience

Products and services which have positive network effects e.g. invitation to a filled disco/bar.

- Community

Products and services that have different pricing depending on how many people are buying it e.g. letsbuyit.com.

- Bargain

Temporary and spontaneous discounts on products and services due to special offers.

Security

Mobile devices are personal gadgets that often belong to only one person. Through the SIM card (Subscriber Identification Module) secure authentication of the user is provided. This establishes a higher level of security that is typically achieved in the fixed internet environment (See Durlacher 1999, p. 8). WTLS (Wireless Transport Layer Security) as the WAP-Standard which is very similar to the SSL (Secure Socket Layer) is one of the currently emerging wireless security standards. The second standard PKI (Public Key Infrastructure) uses the private key for encryption and decryption of messages. (See Salomon Smith Barney 2001, p. 78-82; Durlacher 2000, p. 75-78).

Convenience

Mobile devices are easy to use and offer the user various functionalities from sending, receiving and storing of information up to more complex PC-like applications e.g. Internet Explorer, Word processing etc. All these enhanced features are available to the users any time, anywhere and without any boot-time.

Localization

With the localization technologies COO, TOA, E-OTD and GPS it will be possible to localize users with high accuracy. Localization data of customers will be very crucial for one-to-one marketing practices for individual interaction. For M-Commerce advertising this means the advent of location-based-advertising. Promotional activities can be customized to the location of the user and send to him in real-time.

Personalization

Since the mobile device is becoming a real-life tool and is transformed closer into the fabric of people’s lives it is an eligible conduit of high personalization. Users are easy to identify through their SIM (Subscriber Identification Module) card, so that one-to-one marketing can be realized. Personalized dialogues with customers are established and will help the consumers to reduce information overload by filtering messages according to customer’s needs and preferences. The marketer on the other side can reduce churn rates of their marketing campaigns.

Building customer profiles and sending them highly personalized content can on the one hand add value to the customer but on the other hand also be perceived as intruding the user’s privacy.

Adding the principles of permission marketing to this context will eliminate privacy issues since the customer has the upper hand and can decide on accepting messages. (See next chapter for details about this aspect)

Interactivity

The mobile device as a marketing medium offers a 2-way-communication channel which enables high interactivity with the mobile user. Unlike other media like TV the customer can use the channel for individual requests. Customers can interact with companies, products, offers and services wherever they want to (See Lot21 Report, p. 4, 2001).

2 Permission Marketing

In M-Commerce traditional marketing strategies of mass marketing and interruption marketing will no longer apply. These forms of marketing permanently interrupt the customers in their current activities in order to send them advertising messages. Mobile devices have been transformed closer into the fabric of people’s lives so that a more customerücentric marketing approach is required. Customers want to have the power and control over the relationship with the marketer. They demand more convenient ways of communication especially when they are overwhelmed with unsolicited advertising messages by interruption marketers. The strategy of permission marketing is therefore appropriate for M-Commerce since it impedes any of these inconveniences simply through empowering the customer to authorize every marketing activity.

2.1 Permission in Customer Relationship Management

2.1.1 Definition of Permission Marketing

Permission marketing is a way of marketing that uses customer relationship and interactivity as the key to successful marketing. In M-Commerce permission marketing gives the marketer the opportunity of getting the customers permission to engage him in an interactive relationship based on a dialogue (Newell 2001, p. 70). “In permission marketing the consumer is encouraged to participate in a long-term, interactive relationship in which he is rewarded for paying attention to relevant marketing messages. The individual messages are only exchanged with the permission of the consumer”(Godin 1999, p. 43).

The key success factor of M-Commerce is to offer the consumer what he really wants. As a motivation for the consumer permission marketing uses various benefits (at the easiest “money”)

in exchange for excepting to receive advertising messages. At the same time consumers can specify their preferences so that the message is relevant to them (See Kracke 2001). The new rule of permission marketing in M-Commerce is: “Customers don’t want to be interrupted – unless they want to be interrupted” (See Newell 2001, p. 64). Permission marketing is built on three pillars (See Godin 1999, p. 43):

Anticipation - Consumers know who the marketer is and look forward to hear from him. E.g. Customers know that as soon as they enter a new city they will get information about hotels and sightseeing.

Personalization – Only individual messages that are directly related to the customer’s profile are sent. E.g. only hotel information will be send that is in the price range of the customer. Maybe the customer has indicated that he prefers hotels that are in the city close to discos, bars and restaurants.

Relevance - Only relevant messages are sent that are of interest for the consumer. E.g. customers only get messages when they go to cities that they have never been to before and where they have neither local friends nor local knowledge.

2.1.2 The Concept of Permission

It is estimated that the average consumer receives about one million marketing messages a year across all media, or about 3,000 messages per day. (See Hagel/Singer 1999(a), p. 3)

These unsolicited marketing messages demand the high need for change in marketing. The customer is asking for the right to be left alone. Like Chief Justice Brandeis^[13] wrote in 1890 in a landmark case: “The right to be left alone is the most comprehensive of rights, and the right most valued by a free people”.

Interruption marketers seem to ignore this basic right of consumers when creating marketing campaigns. Most marketing messages are optimized to interrupt what the consumer is doing at that time. Consumer are interrupted when watching movies on TV, when listening to the radio and even when they are in most intimate locations like public bathrooms (i.e. advertising postings in urinals). Interruption marketer’s goal is to get customer attention by interruption for a single moment. Lately, it has become very difficult to cut through the clutter and get this single moment of attention. High investments in clever advertising campaigns are used to increase customer attention but unfortunately they have the contrary effect of creating more clutter.

However in M-Commerce these approaches are less likely to be successful. A recent survey of The Boston Consulting Group (See Figure 2-1) found out that nearly 90 percent of current and potential M-Commerce users want to control the type and timing of M-Advertisement. This same group also says that being able to switch advertising off would be a basic requirement (See Boston Consulting Group 2000, p. 28).

illustration not visible in this excerpt

Figure 2-1: Consumers want to control advertising (Boston Consulting Group 2000, p. 28)

Permission marketing which is context-sensitive can put the customer in control. It allows the customer to decide exactly how their personal data should be used and most importantly when and what they want to receive via their mobile device (Stone 2001, p. 23).

Therefore, using an aggressive and unsolicited form of marketing like interruption marketing will turn into customer’s dissatisfaction. In Europe already first SMS-based advertising messages are spammed to customers with ignorance to their privacy. Consumers feel irritated and try to avoid any further contact with marketing messages. Likewise, a view on the markets in Japan shows that NTT DoCoMo’s i-mode has already encouraged many interruption marketers to send unsolicited spam advertising messages. NTT DoCoMo is currently attempting to implement mechanisms to block these unwanted messages (See W.a 2001, “ Battle Against Spam Heats Up”). Cocooning^[14] – the non-observance of marketing messages where customers hide and avoid any Person-to-Machine contacts - could be the reaction of some customers (See Schwarz 2000, p. 47). Since the mobile device is a personal gadget and is carried around anywhere and anytime, it is important for marketers to create new strategies for protecting customer privacy.

2.1.3 Mobile Customer Relationship Management

Since the manifold opportunities of M-Commerce can lead to success but also failure M-CRM (Mobile Customer Relationship Management) reaches an important meaning in this context (See M.Grabe 2001, p. 14-15).

“M-CRM encompasses all activities via mobile devices aimed at identifying, attracting and retaining the most valuable customer for a sustainable profitable growth. M-Commerce has the ability to identify and serve “best” customers and create a dialogue leading to customer intimacy” (Lemberg 2000, p. 2). So that the main idea of CRM is to give better services to higher value customers (See Stone 2001, p. 21).

In this context one-to-one marketing should be reviewed. Principles of one-to-one marketing are also envisioned by permission marketing and M-CRM. Short outlines of its fundamentals are given here. The one-to-one marketing approach which was mainly developed by Peppers/Rogers in 1993 tries to treat each customer individually on a one-to-one basis. The process will involve the entire enterprise in an effort to handle customers as individually as possible across every function, department and division in the enterprise (See Newell 2001, p. 10). Compared to mass marketing customers are not anonymous customers of target groups anymore. Moreover the marketer is bind in a close relationship with the customers which enables them to serve them in the following way: “I know you, you are in my database. You tell me what you want, and then I will make it for you that way” (See Peppers/Rogers 1999, p. 8). Main ideas of one-to-one marketing according to Peppers/ Rogers are pinpointed below: (For the following paragraph see Peppers/Rogers 1999)

- Share of customer rather than share of market

Marketers should concentrate on one customer at a time in order to sell that customer as many products and services as possible. In general customer acquisition is 5 times more expensive than customer retention (See Pepper/Rogers 1999, p. 52). Therefore in M-Commerce the focus should be on retaining existing customers rather than on obtaining new ones in order to increase the “share of wallet” (See Newell 2001, p. 90).

- Differentiate your customer not just your products

Instead of “targeting on averages“ in heterogeneous customer segments activities should be pinpoint to individuals. Traditional marketing approaches focus on advertising messages made for the average customer in the target group. Nevertheless even if this target groups are carefully segmented through marketing research they still represent bundles of heterogeneous customers.

- Economies of scope rather than economies of scale

Close customer relationship is useful due to its information scope about a single customer. These economies of scope are important competitive advantages.

- Manage customers not just products

This principle tries to change an organization towards a customer-management organization (customerücentric). The customer becomes a “prosumer” because he is the owner of the relationship and can be integrated into the value creation process (See Wohlfahrt 2001, p. 52).

- Dialog with the customer

2-way interaction between customers and marketers should be enforced in order to get valuable feedback from customers. 3rd generation Mobile devices will offer Call-Back-Buttons for instant customer help and feedback.

- Bring products to the customer not vice versa

3rd G technologies allow customers to order products and services to nearly any predetermined locations. Mobile-shopping solutions like offers of barpoint.com or ecompare.com already add value to mobile users by allowing them to save product specifications (May 2001, p. 134).

- Protect customer privacy

Giving the customer the ability to control intrusion and dissemination of his personal information needs to be respected in any marketing activity. This thesis will concentrate on the aspect of how customer data can be protected by Mobile-Infomediaries and used for permission-based advertising.

2.2 “Opting” in M-Marketing

While the prevalent model in the fixed Internet is “opting out” in M-Commerce the predominant model should be “opting in”. Customers who use o pting in for a customer relationship management program agree to have their purchase histories and behaviors monitored in order to receive customized messages and offers. (See Newell 2001, p. 64-65)

“Opting in” is the method where it is mandatory to seek an individual’s permission before sending the marketing messages. This has to be an explicit authorization for marketers to contact him. iTouch ^[15] as a distributor of mobile marketing campaigns states: “We insist that before we actively start any SMS campaign on their behalf they furnish us with a statement attesting that each person to whom we broadcast the sales message has given signed approval” (Brophy 2001, p. 2) .

“Opting out” on the other hand requests the customer to actively prohibit any messages or services. The customer perhaps needs to check a box stating that he does not want any messages delivered to him. If customers fail to communicate their aversion the marketer assumes that they are willing to receive messages.

2.2.1 The Six-Step Opting Program

The strategy of “opting in” in M-commerce needs to be broadened and should include the dimensions of opting on, opting when, opting where, opting how and most importantly opting now. (For following paragraphs see Newell 2001, p. 66-71)

The ubiquitous wireless Internet affects the lives of its users in so many ways that it gets clear that permission marketing is more than “opting in”. These dimensions of customer permission will be classified in the following:

Opting in - Can I send you stuff?

The customer explicitly agrees to receive advertisement from the marketer. This implies that consent should not be presumed from those who did not reply to any invitation. Furthermore, subscribers of the service specify their personal interest and preferences towards promotional messages.

Opting on - Will you agree to listen?

Mobile devices need to be turned on and customer’s attention needs to be pointed to the received message. Nevertheless, the key to permission marketing is the situational relevance (See chapter 2.4.2) of the message transmitted to the customer. It is important where, when and how the message is being sent.

Opting when - Will you tell me when you would like to listen?

Marketers need to know when the best time is to interrupt their customers. During certain periods of times or on certain days of the week messages could be more or perhaps less tolerated by the customer. Some people might choose Monday between 10 and 12 a.m. as they are alone at home and do not have anything important to do.

Opting where - Will you tell me where you would like to hear from me?

Opting where is mandatory for location-based-services. Marketers want to know where the best location would be to contact their customers. People can choose from various places like home and work or situations e.g. when traveling or when driving the car.

Opting how - Will you tell me how you would like me to reach you?

At this point the customer decides whether he wants to be contacted via SMS, voice or other means. In addition they can also determine how often they will receive messages, once or even more times a day.

Opting now - Would you like me to be always there for you?

Where as till now all services were on a push basis the last step leverages a typical pull service to the customer. Customers proactively signal that they want a specific service. Marketers on the other side must be prepared at any time and location to fulfill customer’s requests.

To sum it up, for M-Commerce advertising customers fill out a form specifying the types of products they would like to see promoted, along with the days and times they want promotions to be sent to them, and the maximum number of messages they want to receive each week.

2.2.2 Spam and Clutter

Spam is the point where no permission is involved anymore, although low levels of targeting to segments (not individuals) can be detected in the messages. In the Internet context the IMT Strategies defines “spam” as promotional bulk email whose recipients never consented to a marketing relationship with the sending company” (See IMT Strategies 1999, p. 1). This definition can be transferred to M-Commerce easily by substituting email through new forms of messaging like SMS, EMS or even MMS.

Unsolicited messages sent to the customer impose negative externalities. When receiving high amounts of messages customers have limited abilities to read and process the messages. (See Shiman 1996, p. 45-46) Often consumers feel annoyed and stop reading the messages. Any further contact with the medium will be avoided. On the other hand marketers take advantage of the low marginal cost of creating advertising mail messages and start to increase the amount of sent messages. The low marginal cost of producing messages and the shrinking response rates create a situation of excessive message sending. At the end of the day this results to highly negative effects of reduced social welfare. (See also chapter 4.4.2)

Permission (opting) can be the solution that impedes the lowering of social welfare (See chapter 4.4.2). Customers and marketers both benefit from this approach. But opting should not be seen as a new phenomenon that hasn’t been around before. Around 30 years ago the so called Robinson-list had similar intentions. At that time consumers could put their names on these lists in order to avoid any “spam” by unsolicited messages (mainly posted by mail). Nowadays, associations like the Deutsche Direktmarketing Verbund (DDV) ^[16] or the Interessenverband Deutsches Internet (I.D.I) ^[17] offer the same service not only to avoid Email spam, but also advertising sent through SMS. The service is free of charge and is anonymous. Although permission marketing existed for a very long time it is more significant now because it takes a better advantage of new technologies than any other form of marketing. During the evolution of the fixed Internet it was considered that the Internet technology is the greatest direct mail medium of all times for permission marketing due to very low costs of frequent interaction. For M-Commerce it predicts an even prosperous future. Compared to the traditional fixed Internet the attributes of M-Commerce e.g. convenience, reachability and personalization can be used to make permission marketing even more advantageous. Applying the tool of permission correctly can improve the customer relationship drastically, so that advertising can be more effective and efficient. A situation of mutual satisfaction can be built for both parties, consumers and marketers.

2.3 Permission Intensity

Permission marketing is a sequential process where consumers move up a permission ladder. Consumers start as strangers on the first step of the ladder and end up as loyal customers and friends on the highest step. Every movement towards a higher step implies a growth in trust, responsibility and profits (See Godin 1999, p. 97).

The term permission intensity defines the degree to which a consumer empowers a marketer in the concept of a communicative relationship. (See Krishnamurthy, p. 5, 2001) The perfect relationship is therefore based on high permission intensity. This stage is characterized by the three factors high information quantity, high information quality and information usage flexibility. But vice versa low permission quality does not necessarily mean less detailed customer profiles since customer information can also be collected through an off-line database or through cookies. Figure 2-2 illustrates the different levels of permission on a permission intensity scale.

[...]

^[1] A term evolved from a Monthy Python sketch - a song describes a table where everything on the menu includes Spam (a rather odd form of canned meat). The group sings the song again and again to express the ridiculous notion of forcing Spam onto everyone’s table without wanting it. (See Godin 1999, p. 129)

^[2] translated from original quote: “ Die elektronisch gestützte Abwicklung von Online-Geschäftsvorfällen auf Basis der Nutzung der mobilen Endgeräte wird als Mobile Commerce bezeichnet.“

^[3] Translated from original German quote: “kampagnenorientierte Unterstützung der Marketing- und Kommunikationspolitik auf mobilen Endgeräten durch den Einsatz mobiler Datendienste” (J. Wohlfahrt 2001, p. 247).

^[4] meaning 4 slots for downloading and 1 for uploading

^[5] i-mode which is based on packet switched transmission enables users to access a wide range of sites by simply pressing the i-mode key. NTT DoCoMo introduced the “always-on” function which charges the costumer regarding their data transmission rather the time spent online. For further information see http://www.nttdocomo.co.jp/english/p_s/imode/index.html and P.J Louis 2001, p. 194-200

^[6] works with the IMT-2000 radio standard on 3rd G networks. UMTS is based on TD-CDMA and W-CDMA

^[7] For further information see Buckingham 2000

^[8] For further information see Buckingham 2000

^[9] Also often referred to as Cell ID

^[10] For further information on these technologies please see Paul May 2001, p. 163-169 and Salomon Smith Barney Report 2001, p. 74-77

^[11] See http://www.compaq.de/produkte/handheld/index.htm

^[12] See http://www.hp.com/jornada

^[13] See Brnadeis 1890

^[14] The customer tries to hide in his own sphere similar to snails that cocoon in their snailüshell.

^[15] http://www.itouch.co.uk/index.php

^[16] See http://www.ddv.de

^[17] See http://sms-robinsonlist.de/home.htm