For decades companies have collected information on consumers to focus their marketing and help them devise new products. The digital revolution makes it possible to do this on a scale that is changing radically the relationship between businesses and their customers.
Immense amounts of data are already being collected and processed to increase understanding of customers' spending patterns and preferences. But that leaves the nature of the relationship with the consumer essentially unchanged, with the producer struggling ever harder to learn more about the passive consumer.
A handful of companies are using the information-handling potential of the digital revolution to create an interactive relationship which allows customers to tell producers what they really want. In this two-way exchange, there is the opportunity to learn much more about each customer and offer a range of truly personalised goods and services more likely to succeed in the market.
"Interactivity allows the consumer to shape the product and the supplier to learn from the consumer," says Mr Anthony Freeling of McKinsey business consultants.
The most successful websites in developing this interactive exchange are almost all start-ups rather than established consumer groups or retailers. They include: Amazon, the online bookshop; CDnow, which sells music albums; and Expedia, a travel agency owned by Microsoft.
They use the ability to converse online with the consumer to build up customer profiles based on their past purchases and preferences. A customer who buys books from Amazon will be sent suggestions of other books likely to be of interest, based on what customers with similar tastes are buying. And buyers are invited to submit reviews and comments which may attract like-minded people to make similar purchases.
CDnow invites visitors to its website to look at selections of albums and say whether they already own them, want to buy them or do not like them. The site quickly refines the selection offered in the light of the answers, so a child of the 1960s is more likely to be offered Beatles CDs than an album by The Prodigy.
Such approaches enable companies to "narrow-cast" to their consumers, processing as much data as they can collect about them to offer the products and services they are most likely to buy.
That pays off in terms of repeat business which supplies more than 60 per cent of Amazon's sales, helping boost them threefold over the past year.
And just as companies operating offline seek to stretch their brands into new product areas, so the new generation of online companies is doing the same. Amazon, for example, moved into CDs and videos in June and already claims to be the largest online retailer in music sales. In August it bought PlanetAll, a Web-based address book, calendar and reminder service, and Junglee, a website which helps consumers find the cheapest products on the World Wide Web. And it has reserved domain names which suggest it is looking at digital television.
Conventional retailers such as supermarket chains are also able to use the digital revolution to sharpen their marketing. They already collect large amounts of sales data from electronic point-of-sale (Epos) systems which itemise individual purchases and the time and date of shopping. The information is valuable in helping supermarkets decide what products to sell, when to sell them and what combinations in the layout of the store maximise sales.
Increasing processing power and new software allows this sales data to be linked to credit card or loyalty card records to analyse the spending of individual customers. Retailers can then tailor promotions to persuade their customers to spend more in their stores and try new products.
"This gets away from the `spray and pray' approach which sends money-off coupons for nappies to middle-aged customers," says Mr Richard Taylor, e-business consultant for IBM, the information technology group.
The growth of home shopping offers opportunities for a more interactive relationship with the consumer - using the same techniques as the online retailers. Customers placing their orders by telephone or over the Internet can be prompted to try new products or go for special offers. They can be offered partly prepared meals or recipes linked to ready-bundled ingredients to save preparation time. And there are opportunities to devise online services such as calorie-counting or menu-planning.
"You can use point-of-sale data to segment customers along demographic or lifestyle lines, or to analyse purchasing occasions," says Mr Freeling. "But if you can ask consumers a few questions each, you can really adapt your offering to their needs."
Where does this leave the manufacturers of the goods and services sold online and offline? Many have long been concerned that the possession of detailed sales information gives retailers undue power in the supply chain. The supermarkets can use this data to promote their own-label products and undermine the value of branded products established over the years by expensive marketing campaigns.
Companies such as Unilever and Proctor & Gamble have been quietly building their own databases of names and addresses so they can communicate directly with their customers. For many years, the only way they could do this was by collecting the data from special-offer coupons or by offering after-sales service on items such as household appliances and cars. The growth of the Internet now offers an alternative way for the producers to reach their consumers - one they are keen to exploit.
In some cases, they can cut the retailer out of the supply chain altogether, particularly with "big-ticket" items such as personal computers where the expense of home delivery is small in comparison with the price. Dell, the US group which has specialised in making PCs to customers' exact specifications, has a website which allows customers to assemble their own PC from options offered online.
It is harder to bypass the retailer with lower-priced consumer packaged goods such as food and paper products, since the cost of home delivery would be prohibitive in comparison with the price of the products. But there has been a proliferation of online activity by the consumer goods manufacturers in the form of websites for their brands and other Internet promotions.
At the very least, this helps them add more names and addresses to their customer databases. But they also hope to create or reinforce loyalty to their brands as a counterweight to the power of the retailers.
In some cases, these websites are targeted at traditional customer groups. For example, Proctor & Gamble's Always site promotes its sanitary protection products by offering information of interest to young women.
Others are used to approach new groups, particularly younger consumers who are more likely to be using the Internet: Scholler, a German food company, has a dating service on its website.
Thus the digital revolution offers opportunities to existing businesses and new ones, to producers as well as retailers. For each, the aim is to become like the gentlemen's outfitter which keeps customers' measurements for making future suits: the possession of detailed information about consumers makes it easier for companies to market their goods and services.
"It is a key competitive advantage for companies to know consumers' histories and be able to approach them sympathetically," says Mr Taylor at IBM.
