Internet Marketing

Internet Marketing E-Commerce

Topics • E-commerce takes off • The pace of e-commerce • Distribution strategies • Competing against the Net

E-Commerce Takes Off E-Commerce Influence, Ordering and Buying • E-Commerce Influence = the impact of the Net on purchases made entirely offline Example: Consumer visits music web site to gather info on new releases, but visits retail store to make purchase

E-Commerce Takes Off E-Commerce Influence, Ordering and Buying • E-Commerce Ordering = capturing orders that are placed online but paid later via telephone or in-store Example – A consumer purchases a new car through a web site, but drives to the dealer to pick it up

E-Commerce Takes Off E-Commerce Influence, Ordering and Buying • E-Commerce Buying = combines ordering and paying online Example – A consumer orders an item of clothing on a web site and completes the entire transaction online.

E-Commerce Takes Off Consumer spending online is on the rise! Fig 12.3a

$4.7 – Ordered online, paid for offline $13.5 - Researched online, ordered and paid for offline $11.0 – Paid for online $10.8 – Ordered online, paid for offline $16.3 - Researched online, ordered and paid for offline BIG TICKET ITEMS SMALL TICKET ITEMS E-Commerce Takes Off Breakdown of 1998 Online Consumer Spending Fig 12.3b

Figure 12.4 Majority of E-commerce Sites with One-Day Response E-Commerce Takes Off E-Commerce Impact on Web Sites • Adding e-commerce raises the stakes • E-commerce creates incentives to improve performance and customer responsiveness • E-mail response time is critical • Web-server performance is important • E-commerce sites are most responsive

E-Commerce Takes Off E-Commerce Impact on Web Sites • E-commerce creates strong incentives for companies to enhance their online use of personalization • Raises the value of users’ online experience • Improves customer loyalty • Allows for detailed information gathering • The personalization/e-commerce link is especially strong for business-to-business marketing

E-Commerce Activity Amount of Personalization Figure 12.6: E-Commerce Is Reinforced by Personalization E-Commerce Takes Off The Personalization/E-commerce Link • Total company purchases determines the amount of personalization Dell provides • Greater personalization leads to even more purchases and a higher customer lifetime value

E-Commerce Takes Off E-Commerce Impact on Web Sites • Acquisition costs have gotten higher • Pioneering sites like Amazon.com received massive amounts of PR, which lowered their costs of acquisition • As competitors have entered the marketplace, acquisition costs have climbed • Analysts recommend spending 70% of Year One revenues and 30% of Year Two revenues on customer acquisition • High acquisition costs lead to • A search for cheaper acquisition methods • A premium on building customer loyalty • A drive to expand the total amount of online business done with a particular customer

E-Commerce Takes Off The Profit Pool Concept • Increasing the total amount of business done with a particular customer means that firms need to take advantage of opportunities to add products and services that fit well with current customer purchases and add profit to the firm • Alliance partners can help to make this happen • The profit pool is a useful tool to identify and evaluate potential online online partners • A profit pool identifies the different products in an industry and calculates their industry share of revenue and their profitability

Desirable Features of Online E - Commerce Allies Anchor Service Extension Service Table 12.1 High customer acquisition cost Profitable pool component Frequent customer content High profit/revenue ratio Strong positioning Consistent position to anchor Trusted Effective, reliable E-Commerce Takes Off • 3 Categories of profit pools • Anchor Services – Service providers that form the basis of an e-commerce Web site • Extension Services – Alliance partners with an anchor service • Neutral Services – Profit pool components without high profits or customer contact frequency

E-Commerce Takes Off This suggests that auto insurance, loans and leasing plans are highly desirable partners for both new and used car dealers Figure 12.7

Example: Online car sales E-Commerce Takes Off New intermediaries complicate the split of profits between elements of the profit pool • The battle for customers takes place during: • Researching and selecting the vehicle • Finding a dealer and price • Choosing financing, insurance, warranty • Closing the deal

E-Commerce Takes Off Table 12.3: Steps for Online Auto Buying

Consumer Participation (millions of households) Stage Service Providers Growth Drivers 1998 2003 E-Commerce Takes Off Table 12.3 continued

The Pace of E-Commerce E-Commerce Buying • Web sites provide customers with information that’s difficult and expensive to get any other way • Customers easily obtain information about • companies • products • services • The Net has provided something new and valuable

Price Online buying is cheaper than traditional methods Assortment The range of products better matches buyer desires Convenience The timing, location and buying process are superior Entertainment Buying online is more fun than alternatives The Pace of E-Commerce For e-commerce to continue to grow as quickly as forecasters expect, online selling must excel on the fundamentals that drive buyers

Figure 12.9 – Comparison of Bestseller Prices The Pace of E-Commerce Saving Money: The Simplest Reason to Buy Online • Regular lower prices • An online site can dramatically reduce selling costs for retailers • Competitive pressures keep prices low

The Pace of E-Commerce Saving Money: The Simplest Reason to Buy Online • Sales tax is seldom charged on online purchases • Products delivered electronically - software downloads • When the merchant doesn’t have a physical presence in the state where the product is delivered • Shipping costs vary • Consumers notice and react to the cost of shipping • Shipping to home addresses is expensive • Package delivery companies are optimized for delivery to commercial addresses • One large delivery to a retailer is replaced by many small deliveries

Table 12.6 Physical Retail Problems The Pace of E-Commerce E-tailers Offer Assortment & Convenience • Virtually unlimited shelf space • 24/7 service • Convenient for repeat purchases • One-stop shopping • Ability to comparison shop

The Pace of E-Commerce Entertainment • Less developed due to technical issues such as slow consumer access speeds • Exception is adult entertainment, which earned nearly $1 billion in 1998 • Other entertainment forums include • auction sites • chat rooms • instant messaging • discussion groups

Figure 12.13 Alternative Channel Responses Distribution Strategies Channel Structure Options • Shift sales entirely to manufacturer direct (Dell, Cisco) • Use existing retailers and their web sites (autos, perfume)

Distribution Strategies Channel Conflict Traditional distribution channels are threatened by online commerce • Three sources of channel conflict • Goal divergence – objectives of manufacturer or service provider differ • Responsibility disputes – pertain to customer handling, territorial assignments, functions to be served and technology to be used • Differing perceptions of reality – actions may be misconstrued and lead to conflict

Distribution Strategies Figure 12.14 Likelihood of Channel Conflict

Distribution Strategies E-Commerce and the Proper Distribution System • Disintermediation occurs when layers of a distribution channel are dropped • Example – online brokerages substituting for stock brokers • Reintermediation occurs when layers of a distribution channel are added • Example – services such as auto-locating that combine multi-vendor information and comparison shopping

Distribution Strategies E-Commerce and the Proper Distribution System • Build-to-Order • Direct selling enables mass customization • Allows companies to manufacture unique products quickly and cost effectively • Lowers the cost of holding inventory

Distribution Strategies Real-Time Marketing • Personally customized goods or services continuously update themselves • Continuously track changing customer needs • Without intervention by corporate personnel • Often without conscious or overt input from the customer • Requires direct sales and direct distribution

Distribution Strategies Channel Contacts and Learning • Advantages of using intermediaries • They know more about customers • They have greater knowledge of local markets • They carry a broader product line within a category • They carry multiple product categories However, intermediaries reduce the total number of contacts a firm has

Distribution Strategies Data-Driven Intermediaries • Advantages of using intermediaries • They can build a profile of customer choices based on a much wider array of business than a direct seller would acquire • Incentives for using intermediaries • Customer coalitions – customers join intermediaries that protect their privacy while sharing appropriate knowledge to vendors • Seller scope – a multi-product vendor can learn much more about customers and use this info across product categories

Competing Against the Net Retailer Responses to the E-Commerce Challenge • Selective price discounts • Bricks and mortar merchants can offer discounts for products that can also be bought online • Concentrating attention on late adopters of technology • Some consumers have a lot of fear, uncertainty and doubt about the online shopping experience • This slows their defection to new online outlets

Stage Experiences Differentiated Deliver Services Competitive Position Make Goods Undifferentiated Extract Commodities Market Premium Pricing Competing Against the Net Retailer Responses to the E-Commerce Challenge Creating and staging experiences • Pine and Gilmore stress that the economy is evolving toward experienced-based value • Retailers function less as sellers of products than as stagers of events

Competing Against the Net Retailer Responses to the E-Commerce Challenge Adopt the Internet to create a hybrid system • Bricks and mortar retailers can move certain parts of their retailing function online • Physical locations often a superior way to • Acquire customers • Set up customer relationships • Create a strong retail brand image • The online presence • Drives business to the physical locations • Provides 24/7 convenience for loyal customers • Adds new functionality – gift registries and shopping services

Internet Marketing