The European Model

you know how it is in business meetings. Something you say triggers an idea and, whatever the outcome of the original meeting, you come away with a fresh new concept that changes your outlook forever. So it was for Johan Stael von Holstein, founder and chairman of Ikon Media Solutions, a European Internet agency with 18 offices in 14 countries.

He was giving a presentation to car manufacturer Volvo in Sweden about the impact the Internet might have on its business. Holstein was pointing out that when a consumer goes to a car dealership as an individual, his or her negotiating power is relatively weak. But if that same consumer organizes a bulletin board on the Net and says, “Who else wants to buy this type of car?” and then goes to the manufacturer, they might get a significant group discount.

“Whether that got Volvo thinking, I can’t say, but it certainly got [Holstein] thinking,” says John Palmer, CEO of LetsBuyIt.com. Three years later, the first example of what the company calls “co-buying” was launched in Sweden in April 1999.

Since then, the company has rolled out locally operated Web sites in the United Kingdom, Norway, Finland, Denmark and Germany. It will soon be accessible in the Netherlands, Spain, Austria and Switzerland. With 12 offices in ten countries, this has already made it the fastest-growing Internet company in Europe.

The concept is simple – one that Palmer describes as a “consumer-to-business” model. By bringing together groups of consumers who all want to buy the same product, the company can negotiate for deep discounts compared to high street prices. At the outset, this requires market priming by the company through prenegotiating deals in which the discounts increase according to how many consumers sign up.

But over time, LetsBuyIt.com anticipates that members will tell it which products they want, and it can then enter negotiations on their behalf. The company refers to “members, not just customers,” because it sees itself as acting on their behalf in striking deals with the manufacturers. “That is a cultural difference. We don’t sell, and there is no need to,” says Palmer. “We say, `Tell us what you want, and we’ll get it.'”

LetsBuyIt.com has adopted a permission marketing approach. “When we talk to members, we get their permission to communicate, so we are able to provide information on offers now and in the future by e-mail. That also helps us develop products and services,” he says. By using opt-in, the database is ahead of European data protection legislation and reinforces the sense of membership.

To date, the firm has 100,000 members and has just appointed its first marketing director. Despite operating direct to the consumer, most of the marketing so far has been through advertising to drive traffic onto its site.

But direct marketing will play an increasing role. The company has appointed agency IMP to develop a pan-European loyalty program and carry out targeted communications. This is likely to involve regular e-mails and segmenting its offers according to customer profiles and purchasing behavior data stored on the company’s member database. Direct mail is not currently part of the marketing strategy.

Unlike most Internet sites, the company is not following a publishing model for its business, deriving income from selling advertising to a specific audience. Instead, the firm’s revenue stream is based on taking an undisclosed percentage of the value of transactions from manufacturers. “Money flows through us – we facilitate sales, connecting our members to suppliers. But we don’t handle products,” says Palmer.

The company has appointed Sykes as its logistics partner to operate the fulfillment and delivery aspects of the deals, so all a manufacturer has to do is deliver the products into its depots. Stocks are then broken down into individual orders and shipped. Sykes also provides call center facilities for customer care from a center in Amsterdam.

The response from manufacturers varies. For some, LetsBuyIt.com offers a way to go direct to market without having to develop their own e-commerce facility. Many have not yet formulated any policy about supplying goods via the Internet, while others resist such direct-to-consumer selling. “But the one thing they all know is that this is the way forward and it is going to happen,” says Palmer. “This is not going away. Progressive thinkers say, `Let’s work with these guys.'”

The company is careful to differentiate between its offering and Internet auction sites. The goods through LetsBuyIt.com are current models and well-known brands, which is one reason the company says it is able to negotiate with familiar names to provide products at better prices than on the street.

“They understand that we are in it for the long term. We are not trying to make brands look cheap. But we don’t hold back on the discounts we provide to members – we pass on as much as we can,” says Palmer. The range of goods being offered already covers computer products, sports, toys and white goods, and is constantly evolving.

In some part the offers will reflect the maturity of the marketplace. In Sweden, e-commerce is more highly developed and there is a greater willingness to consider a range of products.

In the United Kingdom, the offer is currently led by domestic goods like toasters, TVs and telephones, because consumers have not had the chance to easily comparison shop for these items and are now finding a better deal than before.

“This is not end-of-line inventory,” says Palmer. “It is only branded goods and first-line stock, like the Philips 31-inch black screen TV. We do not trade in obsolete stock, although some may be older series if our members do not mind. They only have to tell us.” All products also come with full warranties and post-sales support.

Although most new dot-com start-ups rush to float themselves on the stock market, LetsBuyIt has just completed its third round of financing, but is considering a listing in the second quarter of 2000. With no rivals – but also no model that’s familiar to U.K. consumers – its success is likely to depend on the quality of the offers and the prices achieved. As long as manufacturers continue to be happy to trade this way, the future looks bright.

The only question is whether those brand owners eventually choose to say LetsNotSupplyIt.com.